In re Rogers

• Decision Date: 16 October 2006
• Docket Number: Civil Action No. 3:06-CV-0619-G.,Bankruptcy No. 05-81437-BJH-7.
• Citation: 354 B.R. 792
• Parties: In re Sarah K. ROGERS, Debtor. Jack C. Wallace, Appellant, v. Sarah K. Rogers, Appellee.
• Court: U.S. District Court — Northern District of Texas

354 B.R. 792

In re Sarah K. ROGERS, Debtor.

Jack C. Wallace, Appellant, v. Sarah K. Rogers, Appellee.

Bankruptcy No. 05-81437-BJH-7.

Civil Action No. 3:06-CV-0619-G.

United States District Court, N.D. Texas, Dallas Division.

October 16, 2006.

COPYRIGHT MATERIAL OMITTED

David M. O'dens, Settlepou, Dallas, TX, for Appellant.

Holly B. Guelich, Law Office of Holly B. Guelich, Dallas, TX, for Debtor/Appellee.

MEMORANDUM OPINION AND ORDER

FISH, Chief Judge.

Before the court is an appeal by Jack C. Wallace ("Wallace," "the creditor," or "the appellant") from a final order in the United States Bankruptcy Court for the Northern District of Texas. The appellant challenges the bankruptcy court's decision not to apply the restriction of 11 U.S.C. § 522(p) to the debtor's homestead. For the reasons stated below, the order of the bankruptcy court is affirmed.

I. BACKGROUND

This appeal stems from the creditor's effort to restrict the debtor's election of the virtually unlimited Texas homestead exemption. In 1994, the debtor, Sarah K. Rogers ("Rogers," "the debtor," or "the appellee"), inherited a 72.5 acre tract of real property known as 14849 Kelly Road, Forney, Texas ("the current homestead"). Hearing Transcript ("Transcript") at 5:23-25, Jan. 18, 2006; Response to Jack C. Wallace's Objection to Debtor's Claim of Exemption of Homestead ("Debtor's Response") ¶ 8. At the time of inheritance, the debtor was unmarried. See Debtor's Response ¶ 8. Subsequently, she married George E. Rogers; the couple, at all times material to the instant appeal, resided on a tract of real property purchased by the Rogers known as 8644 South F.M. 549, Rockwall, Texas ("the marital homestead"). Jack C. Wallace's Objection to Debtor's Claim of Exemption in Homestead ("Creditor's Objection") ¶ 7; Debtor's Response ¶ 1. The couple claimed the real property in Rockwall as their homestead and resided together on the property until their divorce in 2004. Creditor's Objection ¶ 8; Debtor's Response ¶ 3. In January of 2004, the debtor moved from the marital homestead to the current homestead. Creditor's Objection ¶ 17; Debtor's Response ¶ 9.

In the interim, the Rogers borrowed money from Wallace to embark on an ultimately unsuccessful business venture. See Creditor's Objection ¶ 4; Debtor's Response ¶ 1. On April 19, 2004, Wallace obtained a judgment in the 382nd Judicial District Court, Rockwall County, Texas, against both the debtor and her now ex-husband George E. Rogers. Id. The judgment entered was for the total principal of $316,180.95, plus court costs and post-judgment interest. Id.

On September 28, 2005, the debtor filed for relief under Chapter 7 of the Bankruptcy Code. Docket Sheet, No. 05-81437-BJH-7. In her schedule with the bankruptcy court, the debtor elected to take the state exemptions in accordance with the general provisions of 11 U.S.C. § 522(b). Creditor's Objection ¶ 19; Debtor's Response ¶ 1. Under the Texas Constitution, Article XVI §§ 50 and 51, the state homestead exemption protects the homestead without a monetary limit, from all but certain types of liens. Rogers claimed an interest in the real property constituting the current homestead in the amount of $359,000.00. Creditor's Objection ¶ 19; Debtor's Response ¶ 1. Wallace objected in a timely manner to the debtor's claimed homestead exemption, alleging that 11 U.S.C. § 522(p) would limit the debtor's homestead exemption at the federal statutory amount of $125,000 because the debtor's current homestead had not been her homestead for the 1,215-day period preceding her bankruptcy petition. Creditor's Objection ¶¶ 18, 20. Rogers filed a timely response, and Chief Bankruptcy Judge Barbara Houser denied Wallace's objection. Order Denying Objection to Homestead Exemption, February 7, 2006. This appeal followed.

II. ISSUES

This appeal presents two related issues arising from the recently enacted 11 U.S.C. § 522(p): (1) does the characterization of real property as a homestead qualify as an "interest" within the phrase "debtor may not exempt any amount of interest," and (2) does the term "acquire," within the same phrase, include a change in the categorization of real property as a homestead?

III. ANALYSIS

A. Jurisdiction

This court exercises jurisdiction over this bankruptcy appeal pursuant to 28 U.S.C. § 158(a)(1) and Federal Rule of Bankruptcy Procedure 8001. 28 U.S.C. § 158(a)(1); Bankruptcy Rule 8001.

B. Standard of Review

In reviewing a decision of the bankruptcy court, this court functions as an appellate court and applies the standards of review generally applied in federal court appeals. Matter of Webb, 954 F.2d 1102, 1103-04 (5th Cir.1992); Matter of Coston, 991 F.2d 257, 261 n. 3 (5th Cir.1993) (en banc) (citing Matter of Hipp, Inc., 895 F.2d 1503, 1517 (5th Cir.1990)). Conclusions of law are reviewed de novo. Matter of Herby's Foods, Inc., 2 F.3d 128, 131 (5th Cir.1993). Findings of fact, on the other hand, whether based on oral or documentary evidence, are not to be set aside unless clearly erroneous, and due regard must be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses. See Bankruptcy Rule 8013; see also Herby's Foods, Inc., 2 F.3d at 130-31. A finding is clearly erroneous "when although there is evidence to support it, the, reviewing court on the entire evidence is left with a firm and definite conviction that a mistake has been committed." Matter of Missionary Baptist Foundation of America, 712 F.2d 206, 209 (5th Cir.1983) (quoting United States v. United States Gypsum Company, 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948)). Mixed questions of law and fact are reviewed de novo. Matter of National Gypsum Company, 208 F.3d 498, 504 (5th Cir.), cert. denied, 531 U.S. 871, 121 S.Ct. 172, 148 L.Ed.2d 117 (2000). Because the instant, appeal involves only questions of law, the court's standard of review is de novo.

C. Standard for Exemptions in Bankruptcy Proceedings

Under 11 U.S.C. § 522, a debtor in bankruptcy can exempt certain property from the bankruptcy proceedings and protect that property from subsequent attempts to collect on antecedent debts. 11 U.S.C. § 522(c). Within § 522 is a list of various interests in property — real and personal, tangible and intangible — that a debtor can exempt. See § 522(d). However, the Bankruptcy Code provides an opt-out provision whereby the state either can require the debtor to exempt property under the state law exemptions or can grant the debtor the option of choosing between state exemptions and the § 522(d) exemptions. See § 522(b)(2). Certain states, such as Florida and Texas, provide for generous homestead exemptions. See FLA. CONST. art. 10, § 4; TEX. CONST. art. 15, §§ 50, 51. As part of the 2005 amendments to the Bankruptcy Code, Congress enacted § 522(p)(1), which limits debtors' ability to take advantage of the state homestead exemptions. Section 522(p) in pertinent part reads:

[A]s a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 in value in —

* * * * * *

(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.

The instant appeal centers on the application of § 522(p). The appellant argues that the classification of real property as a homestead is an "interest" in property and thus governed by the 1,215-day statutory period. Additionally, the appellant contends that the term "acquire" encompasses a shift in the property's classification. These arguments, if accepted by the court, would render the appellee's current homestead subject to the limitations of § 522(p), despite her having owned the property in question for eleven years prior to filing her bankruptcy petition, because the shift in categorization of the current homestead from non-homestead to homestead occurred within the 1,215-day statutory period. Due to the recency of the legislation at issue on this appeal, these are questions of first impression.

D. Scope of the Term "Interest"

The meaning of the term "interest" as used within the Bankruptcy Code can be determined from only two possible sources. If the statute is unambiguous, the court is to interpret the statute in accordance with its plain meaning and without regards to any extraneous materials. See Leocal v. Ashcroft, 543 U.S. 1, 9, 125 S.Ct. 377, 160 L.Ed.2d 271 (2004) ("When interpreting a statute, we must give words their `ordinary or natural' meaning..."). However, if the statute is ambiguous, then the court is to decipher the intent of Congress and interpret the statute accordingly. See United States v. Orellana, 405 F.3d 360, 365 (5th Cir.2005) ("When interpreting a statute, we begin with `the language of the statute itself.' ... If the statute is ambiguous, we may look to the legislative history...").

As a threshold matter, the court finds the language of § 522(p) to be unambiguous. Though the Code at no point defines the term "interest," the plain meaning of the statute indicates that "interest" refers to some legal or equitable interest that can be quantified by a monetary figure. There are at least three indicia within the plain meaning of the statute demonstrating that "interest" refers to such a quantitative measure. First, the statute reads, "any amount of interest." § 522(p)(1) (emphasis added). The noun "amount" within its ordinary meaning refers to the "total number or quantity" or "the quantity at hand or under consideration". MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 39 (10th ed.1998); see also In re Rasmussen, 349 B.R. 747, 757 (Bankr. M.D.Fla.2006) ("amount" is a quantitative term). The second clue is that § 522(p) mandates that the "amount of interest" is not to exceed in the aggregate a specified dollar amount. 11 U.S.C. § 522(p)(1). For...