In re Scott

• Decision Date: 26 August 1996
• Docket Number: Bankruptcy No. 95-13797-AM.
• Citation: 199 BR 586
• Parties: In re Sandra Joyce SCOTT, Debtor.
• Court: U.S. District Court — Virgin Islands, Bankruptcy Division

199 B.R. 586 (1996)

In re Sandra Joyce SCOTT, Debtor.

Bankruptcy No. 95-13797-AM.

United States Bankruptcy Court, E.D. Virginia, Alexandria Division.

August 26, 1996.

Caroline E. Costle, Rosenthal, Rich, Grimaldi & Guggenheim, Alexandria, Virginia, for creditor Sheila Harmon.

Robert L. Tomlinson, II, Arlington, Virginia, for debtor Sandra Scott.

Robert O. Tyler, Trustee, Tyler, Bartl, Burke & Albert, P.C., Alexandria, Virginia.

MEMORANDUM OPINION

STEPHEN S. MITCHELL, Bankruptcy Judge.

This matter is before the court on an objection filed by Sheila Harmon, the debtor's largest unsecured creditor, to the debtor's claim of exemptions. A number of issues are raised with respect to specific items that the debtor has claimed as exempt. In addition, the creditor asserts that — because her claim against the debtor is based on a nondischargeable "intentional tort" — none of the debtor's property is exempt with respect to that claim. A trial of the objection was held on April 17, 1996, in conjunction with the separate complaints filed by the same creditor objecting to the debtor's discharge and seeking a determination of nondischargeability.

Facts

The objecting creditor, Sheila Harmon, hired the debtor to care for her elderly mother, who requires around-the-clock nursing care. A full exposition of the facts giving rise to Mrs. Harmon's claim against the debtor is set forth in the court's separate memorandum opinion determining that the debtor's obligation to repay a portion of the money Mrs. Harmon advanced to her was nondischargeable under § 523(a)(6), Bankruptcy Code. Harmon v. Scott (In re Scott), Adv.Pro. No. 95-1497 (Bankr.E.D.Va., June 24, 1996). For the purposes of this opinion, it is sufficient to note that after Mrs. Harmon paid the debtor $28,000 — representing six months wages in advance — the debtor quit approximately six weeks later, ignored Mrs. Harmon's demand for the return of the unearned portion of the wages, and proceeded to spend what remained of the funds (approximately $12,735). Mrs. Harmon brought an action against the debtor in state court seeking compensatory and punitive damages on a number of theories. On August 29, 1995, the day prior to the scheduled trial, the debtor filed a voluntary chapter 7 petition in this court. Mrs. Harmon filed a timely nondischargeability complaint, and this court entered judgment in favor of Mrs. Harmon against the debtor in the amount of $12,735.00 on a theory of conversion and determined that such judgment was nondischargeable under § 523(a)(6), Bankruptcy Code, as a willful and malicious injury to property.

The debtor filed timely schedules claiming certain property as exempt. After the meeting of creditors, as well as a separate examination under Fed.R.Bankr.P. 2004 conducted by Mrs. Harmon, amended schedules were filed on October 20, 1995. On her amended schedule C, the debtor claimed as exempt a 1995 Hyundai automobile valued at $11,000 (but subject to a purchase money security interest in the amount of $11,985), wearing apparel in the amount of $500, various items of furniture and household goods in the aggregate amount of $5,400, jewelry (including a wedding and engagement ring) in the amount of $400, and a $300 savings account. Mrs. Harmon filed a timely objection on November 3, 1995, disputing the debtor's right to any of the claimed exemptions.

Conclusions of Law and Discussion

This court has jurisdiction of this controversy under 28 U.S.C. §§ 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B). Since Mrs. Harmon's objection challenges both specific items claimed as well as the debtor's right to claim any exemptions at all against a claim for an intentional tort, the court will first examine the specific objections and will then address the general objection.

I.

Under § 541, Bankruptcy Code, the filing of a bankruptcy petition creates an "estate" composed of all legal and equitable interests of the debtor in property. Under § 522(b), Bankruptcy Code, however, an individual debtor may "exempt from property of the estate" either the property specified in § 522(d), Bankruptcy Code ("the Federal exemptions"), or, alternatively, the exemptions allowable under state law and general (non-bankruptcy) Federal law. A state, however, may by statute "opt out" of allowing its residents to take advantage of the Federal exemptions. § 522(b)(1), Bankruptcy Code. Virginia has done precisely that. Va.Code Ann. § 34-3.1. Accordingly, residents of Virginia filing bankruptcy petitions may claim only those exemptions allowable under state law and general Federal law. In re Smith, 45 B.R. 100 (Bankr.E.D.Va.1984).

The state law exemptions available to Virginia residents are primarily set forth in Title 34, Va.Code Ann. The most important of these are the "homestead" exemption in Va.Code Ann. § 34-4 and the "poor debtor's" exemption in Va.Code Ann. § 34-26. Under the homestead exemption, a "householder"— defined as any resident of Virginia — may hold up to $5,000 of real or personal property "exempt from creditor process arising out of a debt" by filing for record an instrument known as a homestead deed in the Circuit Court of the city or county where the real property is located and, if personal property is claimed, where the debtor resides. Va. Code Ann. §§ 34-4, 34-6, 34-13, and 34-14. An additional $500 exemption is allowed for each dependent supported by the householder. Va.Code Ann. § 34-4. A disabled veteran is entitled to a further $2,000 exemption. Va.Code Ann. § 34-4.1. Under the poor debtor's exemption, a householder may hold "exempt from creditor process" certain listed assets and categories of assets, some with dollar limits, some without.

A. The 1995 Hyundai automobile.

The debtor purchased a 1995 Hyundai automobile for $15,400 on April 26, 1995, approximately two days after she received the $28,000 advance from Mrs. Harmon. She paid $4,000 down and signed a retail installment contract agreeing to pay the balance in 60 monthly payments of $419.92. The amount due on the contract at the time the debtor filed her chapter 7 petition was $11,985.00, and the value of the car was approximately $11,000.¹ Mrs. Harmon — who as the objecting party bears the burden of proof — does not challenge either of these figures.

The debtor's amended schedule C ("Property Claimed As Exempt"), fails to state the basis for the claimed exemption, but it seems plain that the debtor intended to claim the exemption provided in Va.Code Ann. § 34-26(8) — part of the poor debtor's exemption — which allows a householder to hold exempt from creditor process, in addition to those items properly claimed under the homestead exemption,

(8) A motor vehicle . . . owned by the householder, not to exceed $2,000 in value, except that a perfected security interest on the motor vehicle shall have priority over the claim of exemption under this subsection.

Additionally, the statute provides:

The value of an item claimed as exempt under this section shall be the fair market value of the item less any prior security interest.

(emphasis added). Here, since the prior security interest exceeds the fair market value of the automobile, it necessarily follows that the value of the debtor's interest is less than $2,000, well within the amount allowed by the statute. Accordingly, the objection will be overruled to the extent that it asserts that the debtor's claim of exemption in the automobile exceeds the amount allowed by Virginia law.

B. The furniture and appliances.

The debtor also claimed as exempt, citing her homestead exemption under Va. Code Ann. § 34-4, furniture and appliances in the aggregate amount of $5,400.² Although Mrs. Harmon complains that the debtor has placed incorrect values on the specific items listed, the court cannot find from the evidence that the values ascribed by the debtor to the listed items are inaccurate. Mrs. Harmon also complains that the total amount claimed exceeds the $5,000 maximum allowed. However, as noted above, a householder is allowed an additional $500 for each dependent.³ The debtor's schedules — which are unrebutted — reflect that she has two dependents. Thus, assuming the nature of the plaintiff's claim does not preclude the debtor from claiming the homestead exemption, she would be entitled to exempt a total of $6,000. Accordingly, the $5,400 in exemptions claimed do not exceed the amount allowed by statute.

C. The herringbone gold necklace.

The debtor also claims exempt under Va.Code Ann. § 34-26 a gold wedding ring, a gold engagement ring and a herringbone gold necklace. The debtor places an aggregate value of $400 on the three items. Aside from her general objections, Mrs. Harmon does not specifically object to the wedding and engagement rings, the exemption of which is clearly provided for under the poor debtor's exemption. Va.Code Ann. § 34-26(1a). She does, however, object that no portion of § 34-26 allows the exemption of the herringbone gold necklace. The debtor in her memorandum filed in response to the objection asserts that the necklace is a "family heirloom," the exemption of which is provided for in Va.Code Ann. § 34-26(2).⁴ However, no evidence was offered by the debtor at the hearing with respect to the issue. Since the necklace is not described in the schedules as an heirloom, the court cannot, in the absence of testimony or other evidence establishing its status as an heirloom, find that a proper basis exists for exempting the necklace under Va.Code Ann. § 34-26. Therefore, the exemption, as claimed, will be denied.

D. The $300 savings account.

Finally, the debtor has claimed exempt — as a "tenancy by the entireties" — her interest in a $300 savings account at First Union National Bank titled jointly in her and her husband's names. Under § 522(b)(2)(B), Bankruptcy...