In re Rockwell

Decision Date23 August 2018
Docket NumberCase No.: 15-20583
Citation590 B.R. 19
Parties IN RE: Jeffrey J. ROCKWELL d/b/a Rockwell Productions f/d/b/a Rockwell Productions, Inc., Debtor.
CourtU.S. Bankruptcy Court — District of Maine

Jennifer Gail Hayden, Esq., Christopher J. Keach, James F. Molleur, Esq., Tanya Sambatakos, Esq., Molleur Law Office, Biddeford, ME, for Debtor.

Nathaniel R. Hull, Esq., Verrill Dana LLP, Portland, ME, for Trustee.

MEMORANDUM OF DECISION

Chief Judge Peter G. Cary.

This case examines the permanence of an exemption claim in proceeds resulting from the sale of the debtor's homestead in a converted chapter 7 case in a jurisdiction with a temporal limit to its homestead proceeds exemption, also known as a "vanishing" exemption. The applicable exemption for Maine debtors who seek to protect the proceeds from the sale of their homesteads requires that the proceeds be reinvested in a residence within six months of the sale. Here, Mr. Rockwell filed for chapter 13 relief, received proceeds from the sale of his house during the pendency of the chapter 13, but failed to reinvest all of the proceeds in a new residence before he converted his case to one under chapter 7 and before six months passed from the date of the sale. The chapter 7 trustee lodged an objection to Mr. Rockwell's claim of exemption pursuant to Fed. R. Bankr. P. 4003(b) and a trial was held on May 22, 2018.

For the reasons set forth below, the trustee's objection is overruled.

I. Facts.1

In 2001, Mr. Rockwell bought the real estate and buildings located at 24 B Street, South Portland, Maine. When he filed for relief under chapter 13 of the Bankruptcy Code2 on August 19, 2015, he owned the property and resided there. On his bankruptcy schedules, Mr. Rockwell claimed he was entitled to an exemption of $47,500 of equity in the property pursuant to the Maine homestead exemption statute, 14 M.R.S.A. § 4422(1). This court confirmed Mr. Rockwell's chapter 13 plan of reorganization in November 2015 and his plan anticipated that he would pay the holder of the first mortgage on that property directly and would retain the B Street property. However, by December of 2016, Mr. Rockwell sought permission to sell the B Street property for $160,000 and contribute any non-exempt proceeds of the sale to his chapter 13 plan. At the hearing on the motion to sell the B Street property, the chapter 13 trustee, in his words, "mildly" voiced his concerns about the sale price but expected the court to grant the motion to sell as being a proper exercise of Mr. Rockwell's business judgment. On January 12, 2017, the court entered an order authorizing Mr. Rockwell to sell the B Street property and to pay from the proceeds of the sale (1) his ordinary and customary closing expenses, (2) the balance due to U.S. Bank, and (3) to contribute any non-exempt proceeds of the sale to his chapter 13 plan.

The closing for the sale of the B Street property occurred on March 6, 2017, and after the payment of the closing costs and the first mortgage obligation, the amount of $51,682.87 remained and was distributed between Mr. Rockwell ($47,500) and the chapter 13 trustee ($4,182.87). The chapter 13 trustee never objected to Mr. Rockwell's exemption claims and on August 7, 2017, Mr. Rockwell converted his case to one under chapter 7. As of the conversion date, Mr. Rockwell had spent $18,806.23 of the cash proceeds of the sale, leaving a balance of $28,693.77.3 Upon conversion, the Federal Rules of Bankruptcy Procedure permitted the chapter 7 Trustee an opportunity to object to Mr. Rockwell's exemption claims, Fed. R. Bankr. P. 1019(2)(B), 4003(b), and on December 4, 2017, he did so after the court granted his motion to enlarge the time to file such objections, to which Mr. Rockwell consented. Mr. Rockwell resided at the B Street property until September 2017, when he established his residence at 25 Bancroft Court, Portland, Maine, which was owned by Lorraine H. Flint. Mr. Rockwell has never held an ownership interest in the Bancroft Court property.

II. Jurisdiction and Venue.

This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334, and the general order of reference entered in this district pursuant to 28 U.S.C. § 157(a). D. Me. Local R. 83.6(a). Venue here is proper pursuant to 28 U.S.C. § 1408(1). This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and (b)(2)(B).

III. Burden of Proof.

As the objecting party, the burden of proof is on the chapter 7 trustee to establish that Mr. Rockwell is not entitled to an exemption in the $47,500 cash proceeds. Fed. R. Bankr. P. 4003(c) ; In re Gourdin, 431 B.R. 885, 891 (1st Cir. BAP 2010) ; see also In re Chaney, Case No.15-20725, 2016 WL 4446007, at *1 (Bankr. D. Me. Aug. 23, 2016) ; In re Toppi, 378 B.R. 9, 11 (Bankr. D. Me. 2007), as amended (Nov. 15, 2007); In re Cole, 185 B.R. 95, 96 (Bankr. D. Me. 1995).

IV. Positions of the Parties.

The chapter 7 trustee objects to Mr. Rockwell's exemption claim on the basis that Mr. Rockwell failed to reinvest the cash proceeds from the sale of his B Street property in a new residence within six months of the sale of the property, as required by 14 M.R.S.A.§ 4422(1)(C) which provides: "That portion of the proceeds from any sale of property which is exempt under this section shall be exempt for a period of six months from the date of receipt of such proceeds for purposes of reinvesting in a residence within that period."4 Given the temporal limits of the Maine exemption, the chapter 7 trustee argues, the cash proceeds lost their exempt status when Mr. Rockwell failed to reinvest in a residence in a timely manner. Therefore, these funds must be delivered to the chapter 7 trustee to be administered under chapter 7 of the United States Bankruptcy Code.

Mr. Rockwell counters that the chapter 7 trustee's objection must be overruled because (1) the vanishing nature of the six month rule of 14 M.R.S.A. § 4422(1)(C) runs counter to the Code, (2) the objection disregards controlling First Circuit authority, (3) Mr. Rockwell's right to a homestead exemption was fixed on the date he filed for bankruptcy relief, and (4) Mr. Rockwell's investment of proceeds into the Bancroft Court property is protected under 14 M.R.S.A. § 4422(1)(C), notwithstanding his admission that he has no ownership interest in that property.

V. Discussion.

There is no specific controlling authority from the United States Court of Appeals for the First Circuit on the exact issue presented in this case and there is no uniform approach among the courts to vanishing state law homestead proceeds exemptions in bankruptcy. To address the issue here this court must examine (1) the effect the bankruptcy filing has on the debtor's property, (2) whether the conversion in this case is of any consequence, and, most importantly, (3) how courts treat vanishing exemptions in chapter 7 cases.5

A. Effect of Bankruptcy on the Debtor's Property.

Upon the commencement of a bankruptcy case, an estate is created which encompasses all of the debtor's property, even property that the debtor may later seek to claim as exempt. § 541(a)(1) and (2); Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991) ; In re Reed, 184 B.R. 733, 737 n. 5 (Bankr. W.D. Tex. 1995). The Code permits a debtor to exempt or exclude certain property from the bankruptcy estate which would otherwise be available for distribution to creditors or for administrative expenses. § 522. Owen v. Owen, 500 U.S. at 308, 111 S.Ct. 1833 (1991) ("An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor."); Nealon v. Matthews (In re Nealon ), BAP No. MW 15-035, 2016 WL 312409, at *6 (1st Cir. BAP Jan. 20, 2016). Exemptions are critical to a fundamental underpinning of the Code: providing a debtor the opportunity for a fresh start. Schwab v. Reilly, 560 U.S. 770, 791, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010). Congress permitted each of the states to adopt the federal exemption scheme set forth at § 522(d) or to reject the federal scheme in favor of state law exemptions. See § 522(b)(2). The Maine legislature, along with over 30 other state legislatures, "opted out" of the federal exemptions. 14 M.R.S.A. § 4426 ; Hon. W.H. Brown, L. Ahern, N. Fraas MacLean, Bankruptcy Exemption Manual, § 4:2 (2018). Thus, a Maine debtor must look to Maine state law for homestead exemptions in bankruptcy proceedings. Chaney, 2016 WL 4446007, at *1. Under Maine's homestead exemption, Mr. Rockwell can protect up to $47,500 in real or personal property that he or his dependents uses as a residence. 14 M.R.S.A. § 4422(1)(A). It also allows the proceeds from the sale of exempt property to retain its exempt status for six months for purposes of reinvesting in a residence. 14 M.R.S.A. § 4422(1)(C).

Upon filing for bankruptcy relief, Mr. Rockwell claimed the full $47,500 exemption in his B Street property in accordance with Fed. R. Bankr. P. 4003(a) and 14 M.R.S.A. § 4422(1)(A). He then proposed a chapter 13 plan which was premised, in part, upon his retention of the B Street property. Time passed, and circumstances changed for Mr. Rockwell. He sought court permission to sell the B Street property and, after the chapter 13 trustee weighed in over the treatment of the non-exempt portion of the sale proceeds, this court approved the sale by a final, non-appealed order. The closing occurred, and the chapter 13 trustee accepted $4,182.87 in funds as being the non-exempt component of the sale proceeds while Mr. Rockwell received $47,500 as exempt proceeds. A little over five months after the sale of the B Street property, Mr. Rockwell converted his case to one under chapter 7 and the chapter 7 trustee was appointed to the case. At no time during the chapter 13 portion of the case did the chapter 13 trustee challenge the exempt status of the $47,500 proceeds. However, four months after conversion, and after the six-month time limitation in 14 M.R.S.A. § 4422(1)(C) expired, the chapter...

To continue reading

Request your trial
4 cases
  • Smith v. State (In re Smith)
    • United States
    • U.S. Court of Appeals — First Circuit
    • December 12, 2018
  • In re Mbazira
    • United States
    • U.S. Bankruptcy Court — District of Massachusetts
    • August 24, 2022
    ...and the "complete snapshot rule," under which the petition date governs notwithstanding conditions in state law and subsequent events. See id. at 25-27. The concluded that the "complete snapshot rule" was required "to protect the integrity of the Code (e.g. § 522(c), § 522(k), § 541) and to......
  • In re Hychko
    • United States
    • U.S. Bankruptcy Court — District of Maine
    • May 14, 2019
    ...claimed. Fed. R. Bankr.P. 4003(c). See also, In re Broder, 2019 WL 1273300, at *1 (Bankr. D. Me. Mar. 15, 2019); In re Rockwell, 590 B.R. 19, 22 (Bankr. D. Me. 2018); In re Gourdin, 431 B.R. 885, 891 (B.A.P. 1st Cir. 2010).1 If the objecting party can produce sufficient evidence to rebut th......
  • In re Voisine, Case No. 19-20005
    • United States
    • U.S. Bankruptcy Court — District of Maine
    • May 15, 2019
    ...claimed. Fed. R. Bankr.P. 4003(c). See also, In re Broder, 2019 WL 1273300, at *1 (Bankr. D. Me. Mar. 15, 2019); In re Rockwell, 590 B.R. 19, 22 (Bankr. D. Me. 2018); In re Gourdin, 431 B.R. 885, 891 (B.A.P. 1st Cir. 2010).Discussion. Ms. Voisine satisfied her initial burden by specifically......

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