In re Richards, 22-8002

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
PartiesIn re: Kathy Ellen Richards, Debtor.
Docket Number22-8002
Decision Date25 August 2022

In re: Kathy Ellen Richards, Debtor.

No. 22-8002

United States Court of Appeals, Sixth Circuit

August 25, 2022

Argued: May 17, 2022

Appeal from the United States Bankruptcy Court for the Western District of Kentucky at Owensboro. No. 4:21-bk-40438-Charles R. Merrill, Judge.


Russ Wilkey, WILKEY &WILSON, P.S.C., Owensboro, Kentucky, for Appellant.

Mark Little, THE LAW OFFICES OF MARK LITTLE, Madisonville, Kentucky, for Appellee.


Russ Wilkey, WILKEY &WILSON, P.S.C., Owensboro, Kentucky, for Appellant.

Mark Little, THE LAW OFFICES OF MARK LITTLE, Madisonville, Kentucky, for Appellee.

Before: BAUKNIGHT, DALES, and GUSTAFSON, Bankruptcy Appellate Panel Judges.



This appeal concerns the "uses as a residence" requirement in 11 U.S.C. § 522(d)(1).[1] Kathy Ellen Richards ("Debtor") appeals from the bankruptcy court's order sustaining an objection to a claimed exemption in $23,298.78 that was held in escrow when Debtor filed her bankruptcy petition. Debtor claimed


the funds as exempt pursuant to § 522(d)(1). The Trustee, Mark Little ("Trustee"), objected because although the funds are directly traceable proceeds of Debtor's prepetition sale of her residence, the proceeds were not being "used as a residence" at the time the petition was filed.[2]The bankruptcy court sustained Trustee's objection, holding that the plain language of § 522(d)(1) does not apply to proceeds from a prepetition sale of a residence. The Panel AFFIRMS.


The Debtor's sole issue on appeal is "[w]hether or not the bankruptcy court erred when it held that 11 U.S.C. § 522(d)(1) does not permit the exemption of the proceeds from the prepetition sale of the Debtor's homestead." (Appellant's Statement of Issues on Appeal, Bankr. Case No. 21-40438, ECF No. 41.)

Trustee raises a jurisdictional issue, asserting that this appeal is moot because Debtor amended her Schedule C to add a claim that the proceeds from the sale are exempt under the "wildcard" exemption found in § 522(d)(5). Accordingly, Trustee argues that a ruling on whether the exemption under § 522(d)(1) is available would be an advisory opinion.


Under 28 U.S.C. § 158(a)(1), the Panel has jurisdiction to hear appeals "from final judgments, orders, and decrees" issued by a bankruptcy court. "Orders in bankruptcy cases qualify as 'final' when they definitively dispose of discrete disputes within the overarching bankruptcy case." Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S.Ct. 582, 586 (2020) (citing Bullard v. Blue Hills Bank, 575 U.S. 496, 501, 135 S.Ct. 1686, 1691 (2015)). "An order sustaining a trustee's objection to debtor's claim of exemptions is a final, appealable order." In re Zingale, 451 B.R. 412, 414 (B.A.P. 6th Cir. 2011) (determining that the order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment" (citing Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497 (1989))), aff'd on other grounds,


693 F.3d 704 (6th Cir. 2012); see also In re Aubiel, 534 B.R. 300, 301-02 (B.A.P. 6th Cir. 2015) (holding that an order sustaining or overruling an objection to a debtor's claim of exemption is a final order); Menninger v. Schramm (In re Schramm), 431 B.R. 397, 399 (B.A.P. 6th Cir. 2010) (same); Wicheff v. Baumgart (In re Wicheff), 215 B.R. 839, 840 (B.A.P. 6th Cir. 1998) (same).

"A debtor's entitlement to a bankruptcy exemption most often involves a legal question and is reviewed de novo, except where facts are in dispute." Aubiel, 534 B.R. at 302 (citation omitted). This appeal, however, does not involve any factual dispute. "De novo review requires the Bankruptcy Appellate Panel to interpret statutes independently of the determination of the bankruptcy court." I.R.S. v. Juntoff (In re Juntoff), 636 B.R. 868, 872 (B.A.P. 6th Cir. 2022).

In his brief, Trustee asserts that this appeal is moot because after the bankruptcy court entered the order sustaining Trustee's objection to Debtor's exemption, Debtor amended her exemptions by claiming the "wildcard" exemption in § 522(d)(5) to exempt $10,698.00 of the proceeds. She then remitted the remaining $12,570.78 to the Trustee. Accordingly, Trustee asserts there is not a live case and controversy. See In re Hake, 398 B.R. 892, 899 (B.A.P. 6th Cir. 2008) ("This court determine[s] mootness 'by examining whether an actual controversy between the parties exists in light of intervening circumstances.'" (quoting Fleet Aerospace Corp. v. Holderman, 848 F.2d 720, 723 (6th Cir. 1988))), aff'd, 348 Fed.Appx. 80 (6th Cir. Aug. 14, 2009).

At the outset, the Panel must address Trustee's argument that this appeal is moot because mootness in the Article III sense implicates a federal court's jurisdiction. Because we conclude that a live controversy continues to exist and we can grant effective relief based on the record before us, we reject Trustee's suggestion of mootness, constitutional or otherwise.

As Trustee acknowledged during oral argument, he is holding a substantial portion of the proceeds from the sale of Debtor's former residence and has postponed filing his final report pending the Panel's decision on this appeal. As a result, the Panel could, if it were so inclined, grant Debtor effective relief at least with respect to the proceeds Trustee is holding. Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S.Ct. 1652, 1660 (2019) (finding that an


appellate court may dismiss a case for mootness only if "it is impossible for a court to grant any effectual relief whatever" to the appellant, assuming it prevails).

Trustee's argument that Debtor waived her right to challenge the bankruptcy court's decision by amending Schedule C to claim the "wildcard" exemption under § 522(d)(5) presents a closer question, but ultimately lacks merit under the circumstances of this case. First, Debtor's vigorous prosecution of the appeal belies any notion that she intended to waive her claim of exemption under § 522(d)(1). Second, the amended exemption document (entered on the bankruptcy court docket at ECF No. 34) could be viewed as an attempt to supplement, not supplant, Debtor's exemption claims. Debtor did not restate all her claimed exemptions using the Official Form; instead, she filed an attorney-prepared document indicating that she "omitted" her claim under § 522(d)(5) from the original iteration of Schedule C.[3]

Debtor's post-decision amendment to Schedule C is not so inconsistent with her exemption claim under § 522(d)(1) as to warrant a finding of waiver under the circumstances. The better reading of the record as a whole is that, in filing the amendment, Debtor endeavored to comply with the bankruptcy court's order pending appeal, as her counsel asserted during the oral argument before the Panel. The Supreme Court recently stated that compliance with a bankruptcy court's decision pending appeal does not moot the case if it remains possible on appeal, as it does here, to "undo the effects of compliance." Mission Prod. Holdings, Inc., 139 S.Ct. at 1660-61 (quoting 13B Wright, A. Miller &E. Cooper, Federal Practice and Procedure § 3533.2.2, p. 852 (3d ed. 2008)). As the Panel views the record, the relief Debtor requests


would not be merely advisory but would, if granted, require Trustee to disburse the remaining proceeds to Debtor. Accordingly, the appeal is not moot.[4]


Turning to the merits of the appeal, the underlying facts are not in dispute.

Debtor sold her home six days before filing a chapter 7 bankruptcy petition. The sale of the home netted $36,793.60, which Debtor placed into escrow with the law firm Wilkey &Wilson, PSC. Wilkey &Wilson, PSC represents Debtor in her bankruptcy proceeding. Debtor disclosed the sale of her residence on her Statement of Financial Affairs and provided a copy of the escrow ledger to Trustee.

Debtor claimed the federal exemptions pursuant to § 522(b)(2). She asserted that the proceeds from the sale of her home are exempt under § 522(d)(1) as proceeds from the sale of Debtor's residence. The chapter 7 Trustee filed an objection to the claimed exemption.

The parties' initial briefing before the bankruptcy court reflected an agreement as to the facts, but a dispute as to whether Debtor's federal exemption claim should be allowed. Following briefing, the bankruptcy court held a hearing and required additional briefing on the legal issues. After briefing was complete, the bankruptcy court entered an order sustaining Trustee's objection to the claimed exemption, finding:

[T]here is no language in 11 U.S.C. § 522(d)(1) that would permit the exemption of the proceeds from the prepetition sale of the Debtor's homestead. In relevant part, § 522(d)(1) provides for an exemption in "the debtor's aggregate interest, not
to exceed $25,150 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence." - The language of the Code is clear and unambiguous in this instance, vesting no exemption power in the proceeds arising out of the prepetition sale of a debtor's homestead. See In re Healy, 100 B.R. 443, 445 (Bankr. W.D. Wis. 1989) (holding that "the exemption laws of many states, including Wisconsin, exempt proceeds from the sale of a homestead. There is, however, no equivalent language in section 522(d)(1), and none can be inferred."); In re Lawrence, 469 B.R. 140, 142 (Bankr. D. Mass. 2012) (the court found that for the homestead exemption to apply, "usage [of a residence] must transcend the petition date or at least exist as of the petition date"); In re Boward, 334 B.R. 350, 352 (Bankr. D. Mass. 2005) ("The statutory language is free of ambiguity and plain in its meaning: the debtor must be residing in the property at the time of

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT