In re Park
| Decision Date | 17 March 2000 |
| Docket Number | Bankruptcy No. 97-41034-DRS. |
| Citation | 246 BR 837 |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
| Parties | In re Ace H. PARK, Debtor. |
Reedy Macque Spigner, Plano, TX, for debtor.
Joyce Lindauer, Dallas, TX, trustee.
NOW before the Court is the Trustee's Objection To Debtor's Property Claimed As Exempt ("Objection") filed by Joyce Lindauer, the duly-appointed Chapter 7 Trustee of the above-captioned Bankruptcy Estate and Amended Creditor's Objection To Exemption filed by Michael Maniscalco, a creditor and party-in-interest. This opinion constitutes the Court's findings of fact and conclusions of law required by Fed.R.Bankr.Proc. 7052 and disposes of all issues before the Court.
The Debtor filed for relief under Chapter 7 on March 31, 1997 and Joyce Lindauer was appointed Chapter 7 Trustee to administer the assets of the case (the "Trustee"). Included among his Schedules and Statement of Financial Affairs was Schedule C — his schedule of property claimed as exempt ("Schedules"). The Debtor elected the State of Texas exemptions pursuant to 11 U.S.C. § 522(b)(2) and the Texas Property Code, Sections 41 and 42. The Debtor's originally filed Schedule C lists only his homestead. No value for same or for the debtor's interest in it appeared. No party filed an objection to the Debtor's claim of exemptions. At the May 23, 1997 § 341 meeting of creditors, according to the records provided to this Court, the Debtor indicated that his residence was owned by a living trust known as the Ace Park Living Trust and that the house was so encumbered as to be of no value to the bankruptcy estate. Of even date with the § 341 meeting of creditors, the Court's docket reveals that the Debtor amended his Schedules, including Schedule C ("Amended Schedules"). The Amended Schedules mysteriously disappeared from the Court's files at some time prior to the hearing on the Trustee's Amended Motion To Reopen the case. On June 25, 1997, Michael Maniscalco, a creditor and party-in-interest ("Maniscalco"), filed an Objection to Exemption objecting to the Debtor's claim of the homestead as exempt property on the grounds that the homestead was "part of a spendthrift trust and is not part of the estate". The objection was served upon the Trustee and a hearing was set. In the interim, on July 28, 1997, the Court entered an order of discharge under § 727 and the case was closed. There were no appearances at the August 13, 1997 hearing on the Objection to Exemption and the Court dismissed it1. Thereafter, the Trustee discovered that the Trust also owned shares of stock in various corporations, bank accounts, vehicles, a boat and insurance policies and moved the Court to reopen the case pending investigation into the possible concealment or transfer of assets by the Debtor both before and after the filing of the Chapter 7 petition. The motion was granted, following a trial on the merits. The United States Trustee re-appointed Joyce Lindauer, as Trustee. Thereupon, the Debtor amended his schedules for the third time, including Schedule C, adding the Debtor's interest in the following:
The Debtor also added life insurance benefits payable in the event of his death in an unknown amount, two life insurance policies also valued as "unknown" amounts and, under Texas Property Code § 41.00211, the Ace Park Living Trust valued at $10,012.90. Both the Trustee and Maniscalco objected to the Debtor's claim of exemptions. In particular, the Trustee objected to the Debtor's claimed exemption of the residential property on the grounds that the Debtor could not claim as exempt property he did not own, the Debtor having also claimed the property was owned by the Ace Park Living Trust. Such an asset, she opined, failed to meet the qualifications of the Texas Property Code for property claimed as exempt. The Trustee also objected to the Debtor's claim of stock in his various closely held corporations. Maniscalco objected to the exemption of the residential property on the same grounds as the Trustee and objected to the exemption of the Trust property on the theory that the Debtor was estopped from claiming as exempt property that had not been scheduled.
Prior to trial, Mike Maniscalco, as pre-petition judgment creditor of the Debtor, filed a Complaint to revoke the Debtor's discharge under § 727(d), alleging that Debtor shifted funds and assets employing the Debtor's business entities, both before and after the petition date, in order to defraud the bankruptcy estate and its creditors. As a result, the Debtor's discharge was revoked.2 In the interim, this matter came before the Court pursuant to regular setting. At that time, the parties agreed that the objections could be ruled upon based upon the briefs filed and the matter was taken under advisement.
Subsequent to the trial, but absent leave of the Court to do so3, the Debtor filed his Fourth and Fifth Amended Schedules.4 Schedule C in the Fourth Amended Schedules differs substantially from all previous incarnations. The Ace Park Living Trust has been removed. The homestead is valued at $107,000 with the Debtor's interest in same being valued at $25,000.00. An IRA account with Charles Schwab valued at $9,600.00 has appeared accompanied by horses (number and values unknown), cameras valued at $120.00, a wedding ring valued at $150.00, a term policy at Trans-America, additional office equipment and a fur valued at $125. Household furnishings which were previously valued at $125.00 were revised to $6,500.00. The Trustee filed an objection to the foregoing exemptions claimed by the Debtor based upon concealment, bad faith, prejudice to the creditors of the estate and the Debtor's interference with the administration of the estate.
A debtor may not claim as exempt property which he knowingly concealed and failed to disclose to trustee which normally would be exempt had it been properly scheduled and claimed. To allow the debtor to claim exemptions out of such property would contravene the intentions of Congress set forth in section 522(g)(1) of the Bankruptcy Code. Matter of Dorricott, 5 B.R. 192, 194 (Bankr. N.D.Ohio 1980).
Federal Rule of Bankruptcy Procedure 4003(c) provides that As the objecting parties, the Trustee and Maniscalco have the burden of showing that the Debtor is improperly claiming property as exempt. See, Shelley v. Kendall (In re Shelley), 184 B.R. 356, 360 (9th Cir. BAP 1995). However, as one court suggested in dicta: "while the Trustee has the burden of proving that exemptions are not properly claimed, the initial burden is with the Debtor to establish that the exemption, as claimed, is of the type covered by the statute." In re Gregoire, 210 B.R. 432, 436 (Bankr.D.R.I.1997).5 "If the trustee fails to carry the burden of proving by a preponderance of the evidence that the exemption should be disallowed, the exemption will stand." In re Ciotta, 222 B.R. 626, 629 (Bankr.C.D.Cal. 1998).
In this case, the Court finds based upon the pleadings and the record in this case that the Trustee has demonstrated by a significant preponderance of the evidence the Debtor's blatant dishonesty in preparing his schedules from which may be inferred an attempt to hinder the Trustee's administration of assets of the estate and any distribution to creditors.6 The Court has examined the Debtor's schedules dated March 31, 1997, May 23, 19977, both of which were not objected to by any party, as well as the Debtor's schedules dated July 10, 1998 (which were objected to timely, giving rise to the trial). The Court has also examined the Debtor's Fourth and Fifth Amended Schedules in the record filed after the trial date. The Court acknowledges that amendments to a debtor's schedules are to be liberally allowed when required in the interest of justice. In re Seeley Tube & Box Co., 219 F.2d 389 (C.A.N.J.1955), cert. denied 350 U.S. 821, 76 S.Ct. 46, 100 L.Ed. 734. See also Federal Rule of Bankruptcy Procedure 1009.8 Therefore, the mere number of amendments alone does not impugn the Debtor's veracity.9 However, in the case before this Court, the Debtor's schedules appear as a constantly shifting landscape. The Court cannot impute any level of accuracy or truth to them. The Court concludes that the Debtor has filed whatever appeared to him as being in his best interest as the case developed. See In re Talmo, 185 B.R. 637 (Bankr.S.D.Fla.1995).10 Previously, the Debtor's discharge was revoked, following a full trial on the merits which revealed fundamental inaccuracies in the Debtor's schedules. The revocation of discharge is, nonetheless, an issue apart from that before this Court and not dispositive of the Debtor's entitlement to his exemptions.
Under 11 U.S.C. § 521, a debtor is required, among other duties, to file schedules of assets and liabilities. One seeking benefits under Title 11 of the Bankruptcy Code has a positive duty to disclose for the benefit of one's creditors all of one's interest and property rights. See In re Hannan, 127 F.2d 894 (7th Cir.1942) and Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416 (3rd Cir.), cert. denied 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988). The debtor is required to file comprehensive schedules of creditors, assets and liabilities, current income and expenditures, and a statement of financial affairs, § 521(...
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