In re Price
| Decision Date | 04 April 2001 |
| Docket Number | Bankruptcy No. 99-14541 B. Adversary No. 99-1115 B. |
| Citation | 260 BR 653 |
| Parties | In re Carlton Ivory PRICE, Debtor. Carlton Ivory Price, Plaintiff, v. Manufacturers and Traders Trust Company, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of New York |
UAW Legal Services Plans (Joseph W. Rotella, of counsel), UAW-GM UAW-Ford UAW-Daimler Chrysler, Cheektowaga, NY, for Plaintiff.
Lacy Katzen Ryen & Mittleman, LLP (David D. MacKnight, of counsel), Rochester, NY, for Defendant.
This court previously granted the debtor's motion to reopen his chapter 7 case, for the purpose of commencing the present adversary proceeding to recover from a judgment creditor the allegedly preferential payment of funds garnished from the debtor's wages. The defendant in this adversary proceeding has now moved for summary judgment on two grounds: first, that because the garnished funds were non-exempt assets, the debtor lacks standing to recover a preference under 11 U.S.C. § 522(h) and (i); and second, that the initial closing of the bankruptcy case effected a closing of the period within which the debtor could commence his action under the applicable statute of limitations.
As on any motion by a defendant for summary judgment, this court must assume the facts as alleged in the complaint. On June 9, 1997, the Manufacturers and Traders Trust Company ("M & T") obtained a money judgment against Carlton Ivory Price in Buffalo City Court for the sum of $3,761.19. Shortly thereafter, M & T served an income execution on Price's employer, American Axle & Manufacturing Corporation. More than two years later, on August 13, 1999, Price filed a petition for relief under chapter 7 of the Bankruptcy Code and duly scheduled the claim of M & T as an unsecured debt. From the date of bankruptcy filing, American Axle discontinued all garnishments. During the ninety days prior to bankruptcy, however, the employer had withheld from the debtor's wages the sum of $1,231.12, all of which was forwarded to M & T pursuant to the income execution.
In the original schedules filed with his bankruptcy petition, the debtor had neglected to include any withheld wages on his list of assets. Shortly after the first meeting of creditors, the trustee filed a no-asset report, and the case was closed on November 23, 1999. Then in February of 2000, the debtor moved to reopen his case for the purpose of amending his schedules and to initiate the present adversary proceeding. Opposing this request, M & T argued that the debtor had no prospect for success in its intended litigation. This court found that the delay in amending the schedules was excusable due to a health problem that debtor's counsel had experienced, and that any defenses to an anticipated adversary proceeding would be better considered in the context of that litigation. Accordingly, the court granted an order reopening the case on March 27, 2000. On that same day, the debtor amended his schedules to claim an exemption for all wages that M & T seized within ninety days of the bankruptcy filing. Then on April 12, 2000, the debtor commenced the present adversary proceeding to recover those garnished wages as a preference. In response, M & T has answered and now moves for summary judgment.
M & T's first argument is that the debtor lacks standing to commence the present action. Generally, section 547 of the Bankruptcy Code provides that it is the trustee who may avoid transfers that are preferential. However, for those instances in which a trustee does not attempt to avoid an otherwise avoidable transfer, section 522(h) provides that "the debtor may avoid a transfer of property of the debtor or recover a setoff to the extent that the debtor could have exempted such property under subdivision (g)(1)" of section 522 (emphasis added). Once a lien is avoided, section 522(i) allows the debtor to recover the transferred asset. An essential predicate both for the transfer's avoidance under section 522(h) and for recovery of the transferred asset under section 522(i) is that the asset be exempt under section 522(g)(1). This subdivision allows a debtor to exempt property that a trustee could recover as a preference, but only "to the extent that the debtor could have exempted such property . . . if such property had not been transferred," and only if "such transfer was not a voluntary transfer of such property by the debtor" and if "the debtor did not conceal such property." The argument of M & T focuses on its assertion that Price has no right to an exemption for the garnished funds, and therefore no right to avoid a transfer of those funds.
Price bases his claim to an exemption on New York Debtor and Creditor Law § 283. For debtors like Price who do not own a homestead, this section allows an exemption for no more than $2,500 of cash. Section 283 then defines cash to mean "currency of the United States at face value, savings bonds of the United States at face value, the right to receive a refund of federal, state and local income taxes, and deposit accounts in any state or federally chartered depository institution." M & T asserts that on the day of bankruptcy filing, the garnished funds were not cash in the possession of the debtor, and therefore not an asset that the debtor could exempt. This court disagrees. The purpose of preference law is to return the state of affairs to what it would have been, but for the preferential act. Consistent with this goal, section 522(g)(1) allows a debtor to exempt a preference recovery "to the extent that the debtor could have exempted such property . . . if such property had not been transferred." In the present instance, the employer paid to Price the balance of wages owed in excess of proper withholdings. To the extent that M & T had not garnished the debtor's wages during the ninety days prior to bankruptcy, cash in the amount of $1,231.12 would have been paid to Price. Such cash, if and when restored to the bankruptcy estate by reason of preference litigation, must be allowed the same exempt status that it would have enjoyed if no preference had occurred. Having caused an asset to become something other than cash in the hands of the debtor, M & T may not now argue that the debtor lacks standing because that asset is no longer cash.
M & T's second argument is that the adversary proceeding is barred under the applicable statutes of limitation, as found in 11 U.S.C. § 546 and § 550. Section 522(h) allows a debtor to avoid certain preferential transfers, but only when "such transfer is avoidable by the trustee" under section 547. Section 546(a) provides that an action or proceedings under section 547 may not be commenced "after the earlier of — (1) the later of — (A) 2 years after the entry of the order for relief; or (B) 1 year after the appointment or election of the first trustee . . . if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or (2) the time the case is closed or dismissed" (emphasis added). Similar are the limitations of 11 U.S.C. § 550, which establishes parameters for the recovery of property whose transfer has been avoided. Subdivision (f) of this section mandates that such actions or proceedings "may not be commenced after the earlier of — (1) one year after the avoidance of the transfer on account of which recovery under this section is sought; or (2) the time the case is closed or dismissed" (emphasis added). Unquestionably, the debtor commenced the present adversary proceeding within two years of entry of the order for relief and before the avoidance of any transfer. Accordingly, the issue is whether the action was commenced at some point in time that was earlier than when the case was closed. M & T contends that this adversary proceeding is barred because it was commenced after the initial closing of the case on November 23, 1999. Price contends that the reopening of the case served also to reopen the time during...
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