In re Meyer

• Decision Date: 08 July 1997
• Docket Number: Bankruptcy No. 96-16838-SSM.
• Citation: 211 BR 203
• Parties: In re Richard E. MEYER, Debtor.
• Court: U.S. District Court — Virgin Islands, Bankruptcy Division

211 B.R. 203 (1997)

In re Richard E. MEYER, Debtor.

Bankruptcy No. 96-16838-SSM.

United States Bankruptcy Court, E.D. Virginia, Alexandria Division.

July 8, 1997.

COPYRIGHT MATERIAL OMITTED

Joel Steinberg, Joel Steinberg & Associates, Fairfax, VA, for debtor.

Gordon P. Peyton, Alexandria, VA, Chapter 7 Trustee.

MEMORANDUM OPINION

STEPHEN S. MITCHELL, Bankruptcy Judge.

This matter is before the court on (a) the chapter 7 trustee's objection to the debtor's exemptions, (b) the order to show cause against the debtor for his failure to cooperate with the trustee, and (c) the debtor's motion to dismiss the show cause order. A hearing was held on June 3, 1997, at which evidence was presented and argument was heard. At the conclusion of the hearing, the court reserved ruling and allowed counsel for the debtor to submit a post-hearing memorandum, and gave the trustee an opportunity to respond. The parties have done so, and the matter is now ripe for determination. For the reasons stated herein, the court concludes that $1,432 in Navy retirement pay that had been garnished from the debtor's bank account may not be exempted by the debtor and that a men's watch and cuff links constitute "wearing apparel" that may be exempted under Va.Code Ann. § 34-26(4).

Facts

The debtor, Richard E. Meyer, filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code in this court on December 6, 1996. The meeting of creditors was held on January 16, 1997. By order entered March 14, 1997, the debtor was granted a discharge of his dischargeable debts. After learning that the debtor had not filed a timely homestead deed to perfect the homestead exemption claimed on his bankruptcy schedules, the trustee filed a timely objection on May 1, 1997 to those of the debtor's exemptions that had been claimed under Va. Code Ann. §§ 34-4 and 34-13. In particular, the trustee objected to the exemption of several bank accounts, men's jewelry, and certain funds held under garnishment.

In the debtor's original Schedule C ("Property Claimed Exempt"), he claimed an exemption under Va.Code Ann. § 34-13 in three checking accounts: one with George Mason Bank in the amount of $1.00; a second with First National Bank of Maryland in the amount of $5.00; and a third with Navy American Federal Credit Union sic in the amount of $25.00. The debtor also claimed an exemption under Va.Code Ann. § 34-13 in the following items and amounts: "Misc. men's jewelry" in the amount of $950; "100% Stockholder American Real Estate Brokerage" in the amount of $1; "Richard Meyer Retirement Trust" in the amount of $1; and "Potential proceeds from garnished bank account" in the amount of $1,432.

Because the debtor did not file a timely homestead deed, the trustee by letter dated February 26, 1997, requested that the debtor provide information on the bank accounts, and also demanded payment of the garnishment proceeds and the value of the jewelry, asserting that those assets could not be exempted under the debtor's homestead exemption. On April 14, 1997, debtor's counsel requested that the trustee not object to the claimed exemptions due to the small amount of money involved, while also asking that the trustee inform the debtor within five days if the trustee was going to object to the exemptions. On May 1, 1997, as noted above, the trustee filed an objection to the debtor's claimed exemptions, along with an application for an order to show cause against the debtor for failure to cooperate with, and to turn funds over, to the trustee. On May 7, 1997, this court entered the order to show cause against the debtor, making it returnable to the hearing date on June 3, 1997. On May 19, 1997, the debtor filed a motion to dismiss the order to show cause, claiming that the information requested by the trustee had been provided; that the funds demanded by the trustee could be exempted under other exemption statutes; and that the debtor would be filing amended schedules doing so.

On June 2, 1997 — just one day before the hearing — the debtor filed amended schedules B ("Personal Property") and C ("Property Claimed Exempt").¹ The debtor now specifies that the "men's jewelry" listed in the original schedules as being worth $950 consists of a men's watch and cuff links that he now values at $400 and that he now asserts is exempt under Va.Code Ann. § 34-26(4) as "wearing apparel." At the hearing, the debtor testified that his original valuation of the men's jewelry was only "ballpark" and that the $400 valuation on the amended schedules reflects a better estimate due to "more investigation." The trustee did not contest the debtor's valuation of this property. Property still not listed in the schedules, but which the debtor testified at the hearing that he owned, includes an aviator ring. In the amended schedules, the debtor still claims exempt under Va.Code Ann. § 34-13 the value of the three checking accounts, the 100% shareholder interest in American Real Estate Brokerage, and the Richard Meyer Retirement Trust.

With respect to $1,432 in funds garnished from his checking account, the debtor now asserts that those funds are exempt under Va.Code Ann. § 34-34 as being derived from military retired pay. The debtor testified that the funds garnished consisted solely of his Navy retired pay, which is his sole source of income. The debtor's schedule I ("Current Income") corroborates this. The debtor testified that he has his retired pay deposited directly in a Navy Federal Credit Union savings account and that he subsequently transfers funds as needed to a checking account with George Mason Bank in order to write checks to pay his bills and living expenses.² Neither account contains any designation reflecting that it is a special account or, indeed, anything other than a general savings or checking account, as the case may be. The debtor testified without contradiction that no funds are deposited into either account except for his military retired pay. No evidence was presented that the debtor notified either bank that the accounts were intended solely for the deposit of his Navy retirement income. Finally, the debtor testified that once his retired pay is deposited in the Navy Federal Credit Union account and subsequently transferred to the George Mason Bank checking account, he writes checks on the funds within "a couple days or a week" and spends all of the funds from his retired pay every month.

Conclusions of Law and Discussion

I.

This court has jurisdiction of this controversy under 28 U.S.C. §§ 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. Under 28 U.S.C. § 157(b)(2)(B), this is a core proceeding in which final orders and judgments may be entered by a bankruptcy judge, subject to the right of appeal under 28 U.S.C. § 158.

II.

Under § 541, Bankruptcy Code, the filing of a bankruptcy petition creates an "estate" composed of all legal and equitable interests of the debtor in property, "wherever located and by whomever held." Under § 522(b), Bankruptcy Code, an individual debtor may "exempt from property of the estate" either the property specified in § 522(d), Bankruptcy Code ("the Federal exemptions"), or, alternatively, the exemptions allowable under state law and general (nonbankruptcy) Federal law. A state, however, may "opt out" of allowing its residents to take advantage of the Federal exemptions. § 522(b)(1), Bankruptcy Code. Virginia has done precisely that. Va.Code Ann. § 34-3.1. Accordingly, residents of Virginia filing bankruptcy petitions may claim only those exemptions allowable under state law and general (nonbankruptcy) Federal law. In re Smith, 45 B.R. 100 (Bankr.E.D.Va.1984).

The state law exemptions available to Virginia residents are primarily set forth in Title 34 of the Code of Virginia. The most important of these are the "homestead" exemption in Va.Code Ann. § 34-4 and the "poor debtor's" exemption in Va.Code Ann. § 34-26. Under the homestead exemption, a "householder" — defined as any resident of Virginia — may hold up to $5,000 of real or personal property exempt by filing for record an instrument known as a homestead deed in the Circuit Court of the city or county where the real property is located or, if personal property is claimed, where the debtor resides. Va.Code Ann. §§ 34-4, 34-6, 34-13, and 34-14. Additional amounts may be claimed exempt if the householder supports dependents or is a disabled veteran. Va. Code Ann. §§ 34-4 and 34-4.1. In the case of a debtor who has filed for bankruptcy, the homestead deed must be filed within 5 days of the first date set for the meeting of creditors in the bankruptcy case. Va.Code Ann. § 34-17. Failure to properly file the homestead deed results in the loss of the exemption in bankruptcy. Zimmerman v. Morgan, 689 F.2d 471 (4th Cir.1982).

The "poor debtor" exemption in Va. Code Ann. § 34-26 is in addition to, and independent of, the homestead exemption. Under the poor debtor exemption, a householder may hold exempt from creditor process certain listed assets and categories of assets. Some of these categories have dollar limits and some do not. No specific act, such as the recording of a homestead deed, is required to perfect the poor debtor's exemption. Id.³

Here, it is uncontested that the debtor failed to file a homestead deed. Therefore, unless the property originally claimed exempt under the homestead exemption may be independently claimed exempt under some other applicable provision, it must be turned over to the trustee for administration. Zimmerman v. Morgan, supra. Accordingly, to the extent the trustee desires to administer the three checking accounts, the debtor's shareholder interest in American Real Estate Brokerage, and the Richard Meyer Retirement Trust, the debtor will be required to turn those assets over to the trustee, since they have been claimed exempt only under the...