In re Pace, 13–14017–JDW.

• Decision Date: 10 October 2014
• Docket Number: No. 13–14017–JDW.,13–14017–JDW.
• Parties: In re Richard PACE and Mary Ann Pace, Debtors.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Mississippi

521 B.R. 124

In re Richard PACE and Mary Ann Pace, Debtors.

No. 13–14017–JDW.

United States Bankruptcy Court, N.D. Mississippi.

Filed Oct. 10, 2014.

Kenneth Mayfield, Tupelo, MS, for Debtor.

MEMORANDUM OPINION AND ORDER SUSTAINING CHAPTER 7 TRUSTEE'S OBJECTION TO DEBTORS' CLAIM OF EXEMPTIONS¹

JASON D. WOODARD, Bankruptcy Judge.

This matter came before the Court for hearing on June 10, 2014, on the Objection to the Debtors' Claim of Exemptions (the “Objection”) (Dkt. # 15) filed by Selene D. Maddox, the chapter 7 trustee in this case (the “Trustee”). At the hearing on the Objection, the Trustee appeared, and attorney Lesley C. Walters appeared on behalf of Richard and Mary Ann Pace (the “Debtors”). This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(a) and 1334(b) and the United States District Court for the Northern District of Mississippi's Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 6, 1984. This is a core proceeding arising under Title 11 of the United States Code as defined in 28 U.S.C. § 157(b)(2)(A) and (B). The Court has considered the Objection, the Debtors' response to the Objection (Dkt. # 19), the Debtors' brief in support of its response (Dkt. # 45), and the Trustee's brief in support of the Objection (Dkt. # 84).² In addition, the Court has considered the entire record in this case, the arguments of counsel, and the applicable law. In this case, the Court must determine whether joint debtors in a bankruptcy case are permitted to separately claim the $75,000.00 homestead exemption under Mississippi law, effectively allowing a married couple to exempt equity of $150,000.00 in their home. For the reasons set forth below, this Court concludes that they may not.

I. FINDINGS OF FACT

The pertinent facts in this case are brief and undisputed. The Debtors filed their joint chapter 7 bankruptcy petition on February 25, 2013 (Dkt. # 1). Along with their petition, they filed Schedule C—Property Claimed as Exempt, in which they claimed as exempt the full value of their home. The Debtors assert in Schedule C that the home is worth $130,000.00, and that they are permitted to exempt its full value under § 85–3–21 of the Mississippi Code by each claiming, individually, up to a $75,000.00 homestead exemption. There are no liens on the Debtors' home. The Trustee timely filed her Objection to the Debtors' claim of exemptions, contending instead that the Debtors are limited to a single exemption in their home of $75,000.00, the historical practice in Mississippi. The Trustee does not raise any other issue with regard to the Debtors' claim of exemptions.

II. CONCLUSIONS OF LAW

A. Exemptions in Bankruptcy.

When a debtor files a bankruptcy petition, all of the debtor's assets as of the petition date become property of the bankruptcy estate. 11 U.S.C. § 541.³ The debtor may then reclaim certain property from the estate by claiming it as exempt. 11 U.S.C. § 522; Schwab v. Reilly, 560 U.S. 770, 774, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010). “A fundamental component of an individual debtor's fresh start in bankruptcy is the debtor's ability to set aside certain property as exempt from the claims of creditors. Exemption of property, together with the discharge of claims, lets the debtor maintain an appropriate standard of living as he or she goes forward after the bankruptcy case.” In re Urban, 361 B.R. 910, 913 (Bankr.D.Mont.2007) (citation omitted) aff'd,375 B.R. 882 (9th Cir. BAP 2007). Exemptions are important to a debtor's fresh start, because property fully exempted under § 522 may not be liquidated by the trustee for the benefit of unsecured creditors. See Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991).

Section 522(d) lists categories of property that a debtor may claim as exempt (known as the “federal exemptions”), but § 522(b) provides that states may prohibit their citizens from choosing the federal exemptions (referred to as “opting out”) and instead require the use of state law exemptions. Like many states, Mississippi has opted out, limiting Mississippi debtors to the exemptions provided under Mississippi state law, which provides for the exemption of a variety of personal items and real property. SeeMiss.Code Ann. §§ 85–3–1 (personal and real property) and 85–3–21 (homestead). In addition to the exemptions provided by those statutes, as discussed further below, property owned by spouses as tenants by the entirety is exempt from the claims of creditors of only one spouse (but not necessarily from the claims of joint creditors). In re Dixon, No. 10–51214–KMS (Bankr.S.D.Miss. March 31, 2011).

In order to claim exemptions, debtors are required to file a list of property claimed as exempt. 11 U.S.C. § 522( l ). Rules 4003(a) and 1007 of the Federal Rules of Bankruptcy Procedure set forth the format and information required to be filed by a debtor regarding his claimed exemptions. The property claimed by a debtor as exempt is then considered exempt unless a party in interest objects. Id. If a debtor does not file a list of property that she claims as exempt, a debtor's dependent or spouse may do so in her stead. 11 U.S.C. § 522( l ). This provisionfurthers the exemption policy, as it preserves assets necessary for the minimal support of the debtor and his or her dependents, which in turn minimizes the societal costs of the debtor's indigence. 4 Collier on Bankruptcy ¶ 522.04[1] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). Another example of this policy is the provision that renders waiver of exemptions or of avoiding power unenforceable in bankruptcy cases. 11 U.S.C. § 522(e).

Exemptions are to be liberally construed in favor of the debtor, but a court may not depart from statutory language or “extend the legislative grant,” even under the guise of liberal construction of the exemption. In re Lenox, 58 B.R. 104, 106 (Bankr.D.Nev.1986).

B. Application of Federal or State Exemptions.

In jurisdictions where a debtor may elect either federal exemptions or state exemptions, § 522(b) makes clear that joint debtors must elect the same set of exemptions—either federal or state. Section 522(m) provides that § 522 applies separately to each debtor in a joint case, making it clear that joint debtors electing the federal exemptions are permitted to double the monetary amount of their exemptions. Thus, joint debtors claiming federal homestead exemptions under § 522(d)(1) may each claim an exemption of $22,975.00, for a total exemption of $45,950.00 in the same property.

A state's ability to opt out of the federal exemptions is very broad. See, e.g., Owen, 500 U.S. at 308, 111 S.Ct. 1833 (“Nothing in subsection (b) (or elsewhere in the Code) limits a State's power to restrict the scope of its exemptions; indeed, it could theoretically accord no exemptions at all.”). The majority of courts considering the question have held that, in an opt-out state, whether each debtor in a joint case may separately claim a particular exemption is controlled solely by that state's law. Granger v. Watson (In re Granger), 754 F.2d 1490 (9th Cir.1985). Most courts also hold that § 522(m)'s provision that the statute applies separately with respect to each debtor in a joint case does not serve to create any right to exemption doubling under state law where it does not otherwise exist. In re Rasmussen, 349 B.R. 747, 755 (Bankr.M.D.Fla.2006) (citing Joe T. Dehmer Distributors, Inc. v. Temple, 826 F.2d 1463, 1469 (5th Cir.1987) (applying Mississippi law) (additional citations omitted)). Accordingly, a state may validly limit a married couple to a single homestead exemption. See, e.g., Lenox, 58 B.R. at 105. As Mississippi is an opt-out state, § 522(m) is of no benefit to the Debtors here. Miss.Code Ann. § 85–3–2.

C. Other States' Homestead Exemptions.

State homestead exemption statutes vary widely in application, dollar amount, and land size. For example, Florida (an opt-out state) has a state homestead exemption that is unlimited in value, but limited to half an acre within a municipality or 160 acres outside a municipality. Fla. Const. Art. X § 4. Alabama, on the other hand (also an opt-out state), limits its state homestead exemption to $5,000 for a single person and $10,000 for a married couple. Ala.Code § 6–10–2. Some states require that a debtor have a family, but not necessarily be married, to claim a homestead exemption (or an enhanced homestead exemption). See, e.g., Border v. McDaniel (In re McDaniel), 70 F.3d 841 (5th Cir.1995) (widower debtor with no dependents remained a “family” for purposes of the enhanced Texas homestead exemption).

Several states restrict the right of debtors to double the amount of their limited homestead exemptions, either explicitly by the language of their statutes ⁴ or through case law.⁵ Another state, Arkansas, has a homestead exemption that is unlimited as to value, but limited to one-quarter acre within city limits or 160 acres outside of city limits. Stevens v. Pike County Bank (In re Stevens), 829 F.2d 693 (8th Cir.1987) (applying Arkansas law). Joint debtors in Arkansas may not double the acreage they are permitted to exempt. Id. In other states, however, joint debtors using state exemptions are permitted to double the monetary amount of their exemptions. See, e.g., John T. Mather Mem'l Hospital of Port Jefferson, Inc. v. Pearl, 723 F.2d 193 (2d Cir.1983) (applying New York law); In re Alvarez, 14 B.R. 940 (Bankr.D.Co.1981) (Colorado law). In most cases, these states' exemption statutes make it clear that doubling is allowed. See, e.g.,Ind.Code Ann. § 34–55–10–2(c)(1) ($15,000 exemption “individually available to joint debtors concerning property held by them as tenants by the entireties.”).

Joint debtors are entitled to only one homestead exemption under Vermont law. D'Avignon v. Palmisano, 34 B.R. 796 (D.Vt.1982).⁶ The Vermont statute applied by the court in D'Avignon provided that “[t]he homestead of a natural...