In re Sauer
| Decision Date | 11 March 2009 |
| Docket Number | No. 08-11663.,08-11663. |
| Citation | 403 B.R. 722 |
| Parties | In re George William SAUER, Darla Allene Sauer, Debtors. |
| Court | U.S. Bankruptcy Court — District of Kansas |
William J. Fields, Wichita, KS, for Debtors.
The chapter 7 trustee Steven Speth objects to joint debtors' claim of two separate homestead exemptions under Kansas law.1 Debtors are married, but were separated on the date of the petition and remained separated at the time of trial. Creditor Bank of America seeks stay relief on the property claimed exempt by George Sauer due to his payment default on the note.2 Trial of these contested matters was held February 17, 2009.3 Steven Speth appeared personally. Bank of America appeared by its attorney Tricia Oldridge. Debtors appeared in person and by their attorney William Fields.
These contested matters are core proceedings under 28 U.S.C. § 157(b)(2)(B) and (G). This Court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and § 157(b)(1).
The facts are not in dispute. Debtors filed their joint voluntary petition on July 11, 2008. Debtors listed two parcels of real estate on Schedule A. One parcel was located in Lakin, Kansas with a scheduled value of $85,000 and a secured claim of approximately $37,000. The second parcel was located in Kinsley, Kansas with a scheduled value of $60,000 and a secured claim of approximately $34,000. Both tracts were within the city limits of the respective towns, but the Kinsley property includes "eight contiguous/adjoining acres." On Schedule C, both properties are claimed exempt as debtors' homesteads under the Kansas homestead exemption, KAN. STAT. ANN. § 60-2301. George resides in the Kinsley property and claims it as his homestead. Darla resides in the Lakin property with their high-school age son and claims it as her homestead.
According to the uncontested testimony of debtors at trial, George and Darla were married in 1981. They owned the Lakin property 27 years and lived together at the Lakin property until June of 2008. In 1996 or 1997 they purchased the Kinsley property. They refinanced the Kinsley property with Bank of America in 1999. No tenants occupied the Kinsley property after its purchase and it remained vacant until George moved in shortly before filing bankruptcy. George explained the reason for buying the Kinsley property—that he liked it and thought he might like to live there. Kinsley and Lakin are approximately 115 miles apart. Four to six weeks before filing their bankruptcy, George's financial difficulties led to garnishment or collection activity against him and his wife. Darla was upset over George's financial troubles and the garnishments and they separated. George moved out of the Lakin property and into the Kinsley property.4 No divorce has been filed because as George described it, he cannot afford to pay a lawyer for a divorce proceeding. From all indications from both George and Darla, there is little likelihood of a reconciliation or George moving back to the Lakin property. Both expressed their intent to remain at their respective residences indefinitely.
George is employed in large construction equipment sales. He travels a large portion of the time in connection with his job. He testified that he is remodeling the Kinsley property by installing insulation, re-plumbing it, and re-wiring it. He furnishes his own utilities to the Kinsley property by means of a generator. George and Darla filed a joint tax return for the year 2007, showing a Lakin address.5 Because of the tax savings associated with filing jointly, George testified that they will file a joint tax return for 2008 as well.
With respect to the Bank's stay relief motion, it is undisputed that George has not made any mortgage payments on the Kinsley property since May of 2008. The mortgage payments are some $568 a month.6 Both Darla and George are borrowers under the note and mortgage.7 George acknowledged that he is in arrears on the note on the Kinsley property but contends that his brother will help him cure the arrearage if he is allowed to exempt the Kinsley property as his homestead. In addition, debtors' counsel suggested that a mortgage loan work-out under the Housing Education Program was possible, citing correspondence debtors received in July 2008.8
On August 27, 2008, the trustee timely objected to debtors' claim of homestead exemption under Fed. R. Bankr.P. 4003(b)(1).9 The objection to exemptions were set over to a scheduling conference and then to an evidentiary hearing that was subsequently continued at the request of debtors to the current February 2009 setting.
The trustee, as the party objecting to debtors' claim of exemption, bears the burden of proving that the exemption is not properly claimed.10 Here, however, there are no factual issues concerning the debtors' intent, use or occupancy as a residence, or abandonment. The exemption issue presented to this Court is a pure question of law. Namely, does the Kansas homestead exemption, KAN. STAT. ANN. § 60-2301 (2005), allow married, but separated, persons to each claim a separate homestead exemption?
In arguing that it does, debtors focus on the liberal construction afforded the homestead exemption under Kansas law, the trustee's burden of proof, and the absence of any express prohibition in the exemption statute precluding married persons from claiming different homesteads. In arguing that it does not, the trustee points to the statutory language of the homestead exemption itself and a comparison to the language utilized in other statutory exemptions.
This Court is not writing on a clean slate on this issue. Judge Karlin recently addressed this issue, albeit in a different factual setting, in In re Hall and held under the factual circumstances of that case, that married, separated debtors could each claim a different exemption.11 The Court will address the Hall decision in more detail later in this opinion.
Kansas is one of those states that has opted out of the federal exemption scheme in bankruptcy and therefore, Kansas debtors are limited to state law exemptions.12 Kansas statutorily provides for a homestead exemption at KAN. STAT. ANN. § 60-2301.13 It states, in relevant part:
A homestead to the extent of 160 acres of farming land, or of one acre within the limits of an incorporated town or city, or a manufactured home or mobile home, occupied as a residence by the owner or by the family of the owner, or by both the owner and family thereof, together with all the improvements on the same, shall be exempted from forced sale under any process of law and shall not be alienated without the joint consent of husband and wife, when that relation exists;14
George and Darla's right to claim the homestead exemption is determined as of the date of their bankruptcy petition.15
Many of the legal principles for determining a debtor's right to the homestead exemption are recited in In re Hall.
In bankruptcy ... the claimed exemption is presumed to be valid and the Trustee has the burden of producing positive and clear evidence to rebut the presumption. If she does so, the burden thereafter shifts back to Debtors to come forward with evidence to demonstrate that the claimed exemption is proper. The party claiming the homestead interest may properly testify as to his or her intent regarding a proposed return to the property, and such testimony is sufficient to support a finding that the property remains a homestead.
To determine the validity of Debtors' claimed homestead exemption, the Court must look to applicable Kansas law.... "In determining whether a debtor is entitled to claim an exemption, `the exemption laws are to be construed liberally in favor of exemption.'"
To determine the merits of the Trustee's objection, there are a number of legal and factual issues that must be resolved. First, the Court must determine whether, under Kansas law, married debtors filing a joint bankruptcy petition may each claim separate tracts of property as their homestead.16
This Court does not take issue with the Hall court's recitation of the principles pertaining to claims of exemption and objection thereto. It does, however, note that the Tenth Circuit Court of Appeals has applied a preponderance standard of proof for the objecting party in a bankruptcy setting, as opposed to a "positive and clear eviden[tiary]" standard under Kansas law.17
Because there are no factual disputes here, the Court views the issue presented here as one of statutory interpretation and a pure question of law. This Court is therefore compelled to review and apply the rules of statutory construction in interpreting Kansas' homestead exemption statute.18 The starting point in all cases of statutory interpretation is to ascertain the intent of the legislature if that intent can be ascertained.19 Ordinary words are to be given their ordinary meanings.20 If the statute is plain and unambiguous, the court must give effect as expressed, rather than determine what the law should or should not be.21 It is appropriate to consider and compare language contained in other exemptions provided in Article 23 of the Kansas Statutes.22
And perhaps most pertinent in the instant case, a court cannot interpret a statute in a way that is fundamentally inconsistent with, or ignores, the statute's plain language under the guise of liberal construction.23 While a court should bear in mind that exemption statutes are construed liberally so as to affect their beneficent purposes, a court interpreting the statute is still limited by what the terms of the statute can fairly be said to embrace.24 The Kansas exemption laws are intended to secure to an unfortunate debtor and his family the means to avoid destitution.25 The homestead provision was established for the benefit of...
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In re Vazquez
...and Aracely filed a joint case and claimed their respective dwellings exempt, their cases are very different from the cases they rely on, Sauer28 and Hall .29 These cases are easily distinguished. Sauer holds that the language of the exemption statute grants "a" singular family homestead oc......
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In re Ruck, 10–12479.
...has previously held that Kansans who are married but occupy separate residences may not claim separate homesteads at Kansas law.27 In In re Sauer, the debtors were separated, but not divorced. No divorce case was pending. They merely determined they could not live together and occupied sepa......
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