In re Romano

• Decision Date: 11 October 2007
• Docket Number: No. 05-15742bf.,05-15742bf.
• Citation: 378 B.R. 454
• Parties: In re John ROMANO, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

378 B.R. 454

In re John ROMANO, Debtor.

No. 05-15742bf.

United States Bankruptcy Court, E.D. Pennsylvania.

October 11, 2007.

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Barry A. Rosen, Levin & Cooper, Upper Darby, PA, for Debtor.

MEMORANDUM

BRUCE FOX, Bankruptcy Judge.

Two motions are presently before me in this chapter 7 bankruptcy case — described by the trustee as a "twisted, sad case." Trustee's Memorandum, at 1.¹ The first motion, filed on April 5, 2007, is the trustee's request to sell the debtor's residence at public auction, pursuant to 11 U.S.C. § 363(b) and (f). The second motion, filed on April 26, 2007, is the debtor's motion to amend his exemption claims, so as to declare his residence exempt under Pennsylvania law. Previously, the debtor had elected the federal exemptions found in section 522(d), including its homestead exemption.

The trustee opposes the debtor's request to amend his exemption claims, while the debtor opposes the trustee's request to sell his residence. The only creditor who has filed a proof of claim in this case, Ms. Joanne Ardary, aligns with the trustee's positions.

An evidentiary hearing was held on both contested matters, and the following facts were proven.

I.

The debtor, John Romano, and his wife, Mary Romano, live at 7411 Hill Road, Philadelphia Pennsylvania. They purchased this realty around 1968 and own it as tenants by the entireties. Presently, only the debtor and his spouse reside in the property. They are elderly and not in good health.

Ms. Joanne Ardary is the debtor's niece. When her uncle, Mr. Samuel Romano, the debtor's brother, died in 1998, the debtor obtained certain insurance proceeds arising from this death. Ms. Ardary claimed that she was the rightful beneficiary to a portion of those proceeds, and, after trial, the state court agreed. She obtained a judgment against the debtor in December 2004. See Ex. A-3.

On April 22, 2005, Mr. Romano filed a voluntary petition in bankruptcy under chapter 7. Terry P. Dershaw, Esquire, was appointed interim trustee under section 701 and, at the conclusion of the creditors' meeting, became the permanent chapter 7 trustee. 11 U.S.C. § 702.

The debtor's bankruptcy petition asserted that he had no non-exempt assets to distribute to creditors.² He filed his bankruptcy schedules at the same time as his chapter 7 petition in April 2005. His schedule of real property disclosed his ownership interest in the Hill Road residence, valued at $130,000 with a mortgage lien of only $37,400, as well as a Florida trailer-home valued at $15,000 with no secured claims against it. Both real properties were claimed to be held as tenants by the entireties. See Schedules A and D, Ex. A-17. On the debtor's list of his personal property, he disclosed, inter alia, four Individual Retirement Accounts, totaling about $18,000. He also listed an automobile valued at $6,000. See Schedule B, Ex. A-17.

On the debtor's Schedule C, the list of exemptions, he checked off the box located toward the top of the document, stating that he elected the exemptions available to him under 11 U.S.C. § 522(b)(1) and 522(d): the federal bankruptcy law exemptions.³ And, consistent with this election, the debtor asserted that his automobile was exempt under 11 U.S.C. § 522(d)(2) and (d)(5). The debtor also claimed as exempt under 11 U.S.C. § 522(d)(10)(E) all four IRA accounts. Inconsistently, however, the debtor claimed his interests in his Philadelphia residence and Florida trailer as exempt under Pennsylvania entireties law. See Schedule C, Ex. A-17,

On June 13, 2005, the chapter 7 trustee commenced but did not conclude the meeting of creditors under 11 U.S.C. § 341. The docket entry (No. 7, Ex. A-2) reflects that the trustee did not conclude this meeting as he intended to investigate the debtor's assets. Although there is no corresponding docket entry, it appears that this creditors' meeting was resumed and concluded on September 12, 2005.

Ms. Ardary filed an unsecured proof of claim dated July 21, 2005, in the amount of $28,331.96, based upon her prepetition state court judgment. Ex. A-1. On October 12, 2005 (within 30 days of the conclusion of the § 341 meeting, see Fed. R. Bankr.P. 4003(b)⁴) Ms. Ardary filed objections to the debtor's exemption claims. Ms. Ardary objected to the debtor's attempt to claim the federal exemptions under section 522(b)(1) as to some property interests and the state law exemptions under section 522(b)(2) as to other property interests. See In re Harless, 187 B.R. 719, 727 (Bankr.N.D.Ala.1995) ("[T]he debtor could not pick and choose from both federal and state exemptions in the same bankruptcy case."); see also In re Brannon, 476 F.3d 170, 174 (3d Cir. 2007),("The Bankruptcy Code provides two alternative plans of exemption."); In re Kahan, 28 F.3d 79, 81 (9th Cir.1994) (section 522(b)(1) permits a debtor to choose between exempting assets under either federal or state law).⁵ She also complained that the debtor could not claim the four IRA accounts as exempt under section 522(d)(10)(E).⁶ See Ex. A-3.

Notice of these objections was provided to the debtor and the chapter 7 trustee, with a hearing scheduled for November 16, 2005 and an answer deadline of November 1, 2005. The debtor did not file any response to Ms. Ardary's objections; nor did he appear at the November 16th hearing.

By order dated November 21, 2005, I entered an order sustaining Ms. Ardary's objections to the debtor's attempt to claim both federal bankruptcy and state law exemptions. Given that the debtor's Schedule C checked off the box electing federal exemptions under section 522(b)(1), I disallowed the debtor's exemption claims under Pennsylvania law for both pieces of realty. In addition, as the debtor offered no evidence in support of his exemptions under section 522(d)(10)(E), I also disallowed his IRA exemptions. Ex. A-4. Ms. Ardary, filed a certificate stating that a copy of the November 21st order was served by her attorney upon the debtor and his counsel. See Ex. A-2 (Docket # 19).⁷

Based upon this ruling disallowing certain exemptions, Mr. Dershaw, the trustee, gave notice that he intended to administer non-exempt assets in this case, see Ex. A-2 (docket entry # 18), and engaged counsel to the trustee. See Ex. A-2 (docket entries ## 16, 20, 24, and 26). Once again, the court clerk docketed a certificate stating that notice of this order permitting the trustee to engage counsel was sent to the debtor and debtor's counsel (among others). Ex. A-2 (docket entry # 27).

On April 12, 2006, the trustee's counsel filed a complaint against Wachovia Corporation, seeking turnover of the four IRA accounts that had been declared non-exempt. Ex. A-6. Seven days later, he withdrew that lawsuit. But on May 24, 2007, he brought a similar lawsuit against Wachovia Bank, N.A. and Wachovia Securities LLC. Ex. A-2 (docket entry # 49); Ex. A-13. The trustee testified that, after commencement of this second lawsuit, he discovered that only one IRA account was titled in the debtor's name. This account has a balance of $8,700, and the Wachovia defendants are awaiting the outcome of the debtor's instant motion to amend exemptions before turning over the proceeds of this account to the trustee.

Insofar as the debtor's Philadelphia realty is concerned, on May 23, 2006 the trustee filed an application to engage a real estate broker to sell the debtor's residence on Hill Road. The application included a proposed listing agreement between the broker and the trustee, with an asking price of $260,000. Ex. A-6. On June 5, 2006, the application was granted as unopposed. Ex. A-7. A copy of the order approving the trustee's engagement of a real estate broker was sent to the debtor and the debtor's counsel on June 8, 2006. Ex. A-2 (docket entry # 31).

The debtor conceded during his testimony in this contested matter that he removed the "for sale" signs posted by the broker on his property. He also testified that the real estate broker never attempted to enter the residence. (I do not find his testimony credible regarding the failure of the broker to seek access to the realty.) The trustee testified that he has had inquiries about the property but no offers. There was no evidence that any interested buyers had been permitted to inspect the property.

On July 6, 2006, the trustee filed a motion to compel the debtor to turn over to him title to the Florida trailer and all funds that the debtor had withdrawn from his IRA accounts. Ex. A-8. On July 26, 2006, the debtor responded in opposition to this turnover motion, asserting that the IRA accounts and the trailer were exempt property under Pennsylvania law.

At a hearing held on August 2, 2006, the trustee acknowledged that he had learned from Wachovia that there was only one IRA account titled in the debtor's name held by Wachovia, and that the debtor had not withdrawn any funds from that account. Thus, he acknowledged that he could not properly seek turnover of its proceeds from the debtor. By order dated August 3, 2006, however, I did direct that the debtor surrender his certificate of title to the Florida trailer to the trustee, as that property had been determined as not exempt in November 2005. Ex. A-9.⁸

Apparently, the debtor complied with this turnover directive, giving the trustee his certificate of title to the trailer. However, the trustee testified at the hearing on the instant motions that, due to liens assessed against the trailer by the owner of the location upon which the trailer sits, there was insufficient equity to justify selling the Florida trailer.

On March 5, 2007, the trustee filed an application to appoint an auctioneer to sell the Philadelphia realty owned by the debtor and his wife at public auction. Ex. A10. The application to engage a professional was approved as unopposed on March 21, 2007. Ex. A-11.

As noted earlier, on April 5, 2007, the trustee filed a motion to sell the realty on...