In re Rester

• Decision Date: 07 September 1984
• Docket Number: Civ. A. No. 83-1383-H.
• Citation: 46 BR 194
• Parties: In re Hubert Collins RESTER, Debtor.
• Court: U.S. District Court — Southern District of Alabama

46 B.R. 194 (1984)

In re Hubert Collins RESTER, Debtor.

Civ. A. No. 83-1383-H.

United States District Court, S.D. Alabama, S.D.

September 7, 1984.

Neal E. Buchman, Mobile, Ala., for appellant.

Robert H. Allen, Mobile, Ala., for trustee.

ORDER

HAND, Chief Judge.

I

This cause comes before this Court on appeal from the United States Bankruptcy Court for the Southern District of Alabama. This Chapter 7 case originated with the filing of a voluntary petition by the debtor on April 14, 1983. Appellant-debtor complains of two actions by the Bankruptcy Court. First, appellant contends that the Bankruptcy Court erred in disallowing the homestead exemption claimed by appellant. Second, appellant claims error in the Bankruptcy Court's application of Alabama's split exemption scheme¹ to appellant's personal property exemption. As a subdivision of this contention, appellant complains of the Bankruptcy Judge's order that certain property jointly owned by the debtor and his former wife be sold and the proceeds divided.

II

The bankruptcy judge ruled that the debtor was not entitled to claim a homestead exemption. Finding that the debtor was not occupying the house and, more importantly, had contracted to sell it, the judge ruled that the debtor had abandoned the homestead.

The house in question is one that was owned jointly by the debtor and his wife, now divorced, located at 919 Seacliff Drive, Fairhope, Alabama, 36532. Since Alabama has opted out of the federal exemptions scheme,² the question of abandonment by the debtor and concomitant loss of the exemption is answered by reference to Alabama law. Bankruptcy Reform Act § 522(b), 11 U.S.C. § 522(b) (1979).

The crux of the abandonment issue is the effect of the sales contract that had been entered into at the time of the filing of the bankruptcy petition. If the contract to sell is not equivalent to abandonment, then the debtor's mere absence from the premises is irrelevant, as he obviously was occupying the residence with his possessions.

The learned bankruptcy judge based his decision that the debtor could not claim the homestead on the case of In re Brasington, 10 B.R. 76 (Bankr.M.D.Ala.1981). In that case the debtor had contracted to sell the house and had moved to another location. It was held that this prevented the debtor from claiming the former home under the Alabama exemption law. A similar result seems to be impelled by applying Brasington directly to the instant case. The debtor here had contracted to sell the homestead, and thereby promised to move and live elsewhere. However, two contradicting considerations must be examined to determine whether Brasington applies to this case.

First, as has been noted, the debtor, having contracted to sell the house, obviously cannot continue to reside there. Although Alabama cases speak of protecting the interest of a person in his homestead to the extent of that interest,³ in this case the debtor was retaining no interest whatsoever.

The Alabama exemption, protecting the interest of a person in his residence, applies because of the use to which the land is put, not because of the fixtures on it or the quality of the debtor's interest. Moseley v. Neville, 221 Ala. 429, 129 So. 12 (1930); Bailey v. Dunlap Mercantile Co., 138 Ala. 415, 35 So. 451 (1903); Griffin v. Chattanooga S. Ry., 127 Ala. 570, 30 So. 523 (1900); Tyler v. Jewett, 82 Ala. 93, 2 So. 905 (1887); Watts v. Gordon, 65 Ala. 546 (1880). As a practical matter, the limited exemption of $5,000.00 will only protect a debtor's equity in his home. Nevertheless, if the debtor uses the property as a home for himself, he is entitled to claim it as exempt, if only to the extent of that equity.

If the debtor's equity in his home is greater than the allotted exemption, then from a practical viewpoint, the $5,000.00 is all that the debtor receives if the trustee sells the house. This is the second consideration. It raises the query, if the debtor is only to receive $5,000.00, not an actual piece of realty to use as a home, why should it matter whether the trustee sells the house or the debtor does? The end result is identical: the debtor has $5,000.00 insulated from the claims of creditors. This amount could then be applied toward a new homestead. The problem with this approach is that, while relying on the substantive result of the transaction, it allows the debtor to grasp with one hand what he releases from the other. Thus, the debtor can put his home on the market, so that a good price might enable him to avoid bankruptcy, and yet claim his homestead exemption if he only contracts for a lesser amount. Alabama's homestead exemption "protects the roof that shelters and the land used in connection therewith for the comfort and sustenance of the family, and cannot be converted into a shield for investments from which rents and profits are to be derived." Moseley v. Neville, 221 Ala. 429, 129 So. 12, 14 (1930).

Furthermore, Alabama law allows a person to claim property as exempt from the moment of the contract to purchase. Tyler v. Jewett, 82 Ala. 93, 2 So. 905 (1887). Logically, this principle requires the conclusion that the homestead cannot be claimed once a contract for sale is effective. A contract for sale of land is enforceable by an action for specific performance. The vendee, upon the contract becoming enforceable, gains the right to claim the purchased property as exempt. While it is conceivable that two or more families might own undivided interests in realty such that each could claim a homestead exemption, if one family owns the entire interest and contracts to convey all of that interest, they also convey the right to claim a homestead exemption in the property. Tyler v. Jewett, supra. Therefore, the ruling of the bankruptcy judge on this point is AFFIRMED.

III

In this case the learned bankruptcy judge was confronted with the issue of allotting an exemption in personal property. In Alabama, the exemption of property is determined by state law.⁴ As the amount of property that a debtor may exempt has recently been raised in Alabama,⁵ the question arises as to whether a particular debtor may claim the old exemption or the new exemption. Ordinarily, the exemption to be claimed would simply depend upon the date of the filing of the bankruptcy petition. However, section 6-10-1 of the Code of Alabama states: "The right of homestead or other exemption shall be governed by the law in force when the debt or demand was created."

In prior cases before this Court, section 6-10-1 has been applied to prevent a debtor from claiming the new exemption if debts were incurred before the law was changed. In First National Bank of Mobile v. Norris, 701 F.2d 902 (11th Cir.1983), the Court of Appeals for the Eleventh Circuit limited a debtor to the old exemption. Norris involved only the homestead exemption provided by section 6-10-2 of the Code of Alabama.⁶ The new exemptions were held to be prospective only.⁷ 701 F.2d at 905. Moreover, in Norris there were no creditors who had loaned money to the debtor after the new exemption was passed. Thus, no debts were created against which the debtor could claim a $5,000.00 exemption. In particular, the question of a "split exemption" was not posed to the court.

Since the decision in Norris there have arisen several cases in which the so-called "split exemption" question has arisen.⁸ The Honorable Virgil Pittman, examining the Bankruptcy Court's action in allocating a personal property exemption, applied Norris to those situations. Whereas the Bankruptcy Court's approach was to restrict the debtor to a $1,000.00 exemption if there were debts incurred before the new law was enacted on May 19, 1980, Judge Pittman held that some apportionment was necessary. In Goldsby v. Stewart, 46 B.R. 692 (S.D.Ala.1983), Judge Pittman wrote:

The Bankruptcy Court has held that since some of the debts scheduled by the debtors were incurred prior to May 19, 1980, the debtors are limited to those exemptions allowed prior to that date, and the increased exemption allowances contained in Act. No. 80-569 do not apply. (Emphasis added). This conclusion, the court holds, is incorrect as a matter of law. Under Alabama law, the applicable exemption is determined by the statutes in force when the debt was created. Ala. Code § 6-10-1 (1975). Therefore, it follows that to limit the debtors to the lesser, pre May 19, 1980 personal property exemption when other debts scheduled by the debtor were incurred after May 19, 1980 violates Alabama Code § 6-10-1 (1975).

Id., at 694. Judge Pittman went on to refer to the problems apportionment could possibly cause, but did not articulate any mechanism for resolving those problems. Similarly, in In re Perine, 46 B.R. 695 (S.D.Ala.1983), Judge Pittman wrote, "the pre May 19, 1980 exemptions apply to the debts incurred prior to May 19, 1980, and the post May 19, 1980 exemptions apply to the debts incurred after that date." Id., at 697. Again, no method of apportionment was prescribed.

In the instant case the Bankruptcy Court has not engaged in any apportionment. Instead, the approach taken was to allow the debtor a $3,000.00 exemption, but then allot the excess of $2,000.00 over the old exemption to any creditors with pre May 19, 1980 claims. If such claims totalled less than $2,000.00, any property remaining could be claimed by the debtor.

Indeed, in this case the Bankruptcy Court has allowed even less of an exemption to the debtor. The facts are as set out below.

The debtor owned a certain amount of unencumbered personal property. Of this, property worth $1,141.00 was owned outright by the debtor.⁹ Property having a value of $1,070.00 was owned jointly by the debtor and his former wife.¹⁰ The debtor's interest was a one-half interest, valued at $535.00. Finally, ten items of property were owned jointly by both the debtor and his former wife. The valuations presented by the debtor were contested by the...