In re Sissom

• Decision Date: 11 May 2007
• Docket Number: No. 06-31917.,06-31917.
• Citation: 366 B.R. 677
• Parties: In re Jimmy SISSOM, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Texas

Page 677

366 B.R. 677

In re Jimmy SISSOM, Debtor.

No. 06-31917.

United States Bankruptcy Court, S.D. Texas, Houston Division.

May 11, 2007.

Jimmy Sissom, pro se.

MEMORANDUM OPINION ON THE TRUSTEE'S AMENDED OBJECTION TO HOMESTEAD AND PERSONAL PROPERTY EXEMPTIONS UNDER 11 U.S.C. § 522(o) AND THE TEXAS PROPERTY CODE

JEFF BOHM, Bankruptcy Judge.

I. INTRODUCTION

For many years, pre-petition planning to enhance exemptions was considered appropriate. Indeed, the legislative history of the Bankruptcy Code encouraged such planning:

As under current law, the debtor will be permitted to convert nonexempt property into exempt property before filing a bankruptcy petition. The practice is not fraudulent as to creditors, and permits the debtor to make full use of the exemptions to which he is entitled under the law.

H.R. REP. No. 95-595, at 361 (1977), as reprinted in 1978 U.S.C.C.A.N. 5963, 6317 (citation omitted). In Texas, for example, courts have for many years held that a debtor was allowed, prior to filing a bankruptcy petition, to liquidate nonexempt property and use the proceeds to pay down the lien on the homestead. First Texas Say. Assoc, Inc. v. Reed (In re Reed), 700 F.2d 986, 990 (5th Cir.1983) (noting that under Texas law, fraudulent intent did not affect a debtor's ability to claim an exemption in his homestead, although under 11 U.S.C. § 727(a)(2) debtors who convert nonexempt assets into an exempt homestead on the eve of bankruptcy may be denied discharge); Martin Marietta Materials Southwest, Inc. v. Lee (In re Lee), 309 B.R. 468, 482 (Bankr.W.D.Tex.2004) (discussing the difference between unacceptable intent (e.g., to hinder, delay, or defraud a creditor), and acceptable intent (e.g., to maximize legitimate exemptions)). Such liberal exemption planning went hand in glove with a debtor's statutory right under Texas law to exempt a homestead regardless of its value. TEX. PROP.CODE ANN. § 41.001 (Vernon 2006).

The passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005 reflected a change in Congressional attitude toward exemption planning. As one court has noted: "Congress began to put the brakes on the freedom with which states could protect their state residents by providing generous homestead protection laws." In re Maronde, 332 B.R. 593, 598 (Bankr.D.Minn. 2005). Specifically, BAPCPA added § 522(o).¹ This subsection reduces the value of the debtor's exempt interest in a homestead to the extent attributable to any nonexempt property that the debtor disposed of for the purpose of increasing the debtor's equity in the homestead. The look-back period for this subsection is ten years, and the objecting party has to show that the debtor disposed of the nonexempt property with the intent to hinder, delay, or defraud one or more creditors.

In the case at bar, the Chapter 7 Trustee (the Trustee) has invoked § 522(o) to object to the Debtor's homestead exemption. Specifically, the Trustee seeks to prevent the Debtor from exempting his claimed homestead to the extent of $61,540.99. The Trustee contends that a few months prior to filing his Chapter 7 petition, the Debtor improperly used nonexempt cash of $61,540.99 to help purchase the real property that he now claims as his homestead. This Memorandum Opinion sets forth this Court's reasoning for sustaining the Trustee's Amended Objection to the extent of $50,000.00 and overruling the Amended Objection to the extent of $11,540.99. This Opinion will also set forth this Court's reasoning for overruling the Trustee's Amended Objection to the Debtor's exemption of certain personal property, including a television, stereo system, bunk bedroom set, and watch.

The Court makes the following Findings of Fact and Conclusions of Law under Federal Rule of Civil Procedure 52, as incorporated into Federal Rule of Bankruptcy Procedure 7052, and under Federal Rule of Bankruptcy Procedure 9014. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party.

II. FINDINGS OF FACT

The facts, as stipulated to or admitted by the parties, or as adduced from testimony of various witnesses, or as established by the introduction of exhibits,² are as follows:

1. The debtor in this case, Jimmy Sissom (the Debtor), married Susan Sissom (Ms. Sissom) in 1994. [Exhibit No. 27.] They are still married and have two minor children.

2. Prior to filing his bankruptcy petition, the Debtor owned and operated certain businesses for several years, including a used car business.

3. As of the date of the filing of his bankruptcy petition, one of the companies in which the Debtor had an interest was Dealer's Management Group, Inc. (DMGI), a Texas corporation.³

4. F & S Ventures, Inc. (F & S) is a Texas corporation in which the Debtor owned 500 shares prior to his filing a Chapter 7 petition. F & S's major asset is a storage facility in Katy, Texas.

5 On or about January 31, 2006, the Debtor and Crown Financial, L.L.C. (Crown) entered into a written agreement that included the following provisions:

a. Crown would purchase the Debtor's 500 shares of F & S stock for the amount of $200,000.00. [Exhibit No. 17.]

b. Crown would loan $50,000.00 to the Debtor.

c. The Debtor would have a 90-day option to repurchase his 500 shares of F & S.

6. On February 13, 2006, the transaction evidenced by the written agreement dated January 31, 2006 took place. The Debtor, either directly or indirectly, received $225,100.00 in cash from Crown.⁴ Specifically Crown remitted $189,740.00 to the Debtor and another $35,360.00 to DMGI, the company wholly owned by the Debtor.

7. On February 13, 2006, immediately after receiving the $189,740.00 from Crown, the Debtor obtained four cashier's checks — each payable to Ms. Sissom — in the amounts of $39,740.00, $50,000.00, $50,000.00, and $50,000.00, respectively. [Exhibit Nos. 16, 63, 67.] On this same day, the Debtor delivered these four cashier's checks to Ms. Sissom.

8. On March 10, 2006, Ms. Sissom deposited the $39,740.00 check into DMGI's account. [Exhibit Nos. 16, 22, 67.]

9. On March 24, 2006, Ms. Sissom deposited one of the three $50,000.00 checks into DMGI's account. [Exhibit Nos. 16, 22, 67.]

10. On April 3, 2006, the Debtor was served with a summons and petition in a case styled Royal Oaks Bank S.S.B. v. Dealer's Management Group, Inc. and Jimmy W. Sissom, Cause No.2006-16529, in the District Court of Harris County, Texas, 151st Judicial District (the State Court Lawsuit). Royal Oaks Bank had filed the State Court Lawsuit on March 10, 2006, after its counsel had sent a letter to the Debtor on February 28, 2006 threatening to file a lawsuit to collect indebtedness that the Debtor had guaranteed. [Exhibit Nos. 73, 74.]

11. On April 7, 2006, Ms. Sissom and David Weekley Homes entered into a Real Estate Purchase Agreement whereby Ms. Sissom would purchase certain real property located in Bastrop County, Texas. [Exhibit No. 50.] Specifically, this property was a newly-built house located at 106 Eight Oaks Drive, Bastrop Texas (the Bastrop Property). The purchase price of the Bastrop Property was $302,240.00.

12. On April 11, 2006, the Debtor and Ms. Sissom entered into a Real Estate Purchase Contract with Sandra and Jose Perez whereby the latter would purchase certain real property located in Fort Bend County, Texas. [Exhibit No. 42.] Specifically, this property was a house located at 4315 Waterlily Court, Missouri City, Texas (the Missouri City Property). The Missouri City Property was the homestead of the Debtor and Ms. Sissom at the time they entered into the contract with Mr. And Ms. Perez. On the same day, the Perezes delivered a $3,000.00 earnest money check to the Sissoms [Exhibit Nos. 69, 72]; on the next day, April 12, 2006, this $3,000.00 check was deposited into Account Number 637889346 at Chase Bank, an account solely in the name of Ms. Sissom (the Chase Account).⁵ [Exhibit Nos. 20, 69.]

13. On April 13, 2006, Ms. Sissom deposited one of the two $50,000.00 checks still in her possession into the Chase Account. [Exhibit Nos. 16, 20, 69.]

14. On April 18, 2006, Ms. Sissom obtained a $50,000.00 cashier's check from Chase Bank by withdrawing funds in this amount from the Chase Account. [Exhibit Nos. 20, 48.] The cashier's check was made payable to Independence Title Company. [Exhibit Nos. 48, 58.]

15. On April 19, 2006, Ms. Sissom obtained a $11,540.99 cashier's check from Chase Bank [Exhibit No. 48] by withdrawing $2,540.99 from the Chase Account [Exhibit No. 20] and obtaining $9,000.00 from an undisclosed source. This cashier's check was also made payable to Independence Title Company. [Exhibit No. 58.]

16. On April 20, 2006, Ms. Sissom, in order to effectuate the purchase of the Bastrop Property, signed the following documents:

a. Loan Application [Exhibit No. 54] — In this application, Ms. Sissom represented to the prospective lender, America's Wholesale Lender (AWL), that title to the Bastrop Property would be held in both her name and the Debtor's name, and that the Bastrop Property would be community property [Exhibit No. 54, p. 000042];

b. Promissory Note in the original principal amount of $241,792.00 payable to AWL [Exhibit No. 51];

c. Deed of Trust, in order to secure the Promissory Note with the Bastrop Property [Exhibit No. 53];

d. Planned Unit Development Rider [Id.];

e. Second Home Rider — This document expressly states that the Bastrop Property is the "Borrower's second home"⁶ [Id];

f. Closing Affidavit [Exhibit No. 55]; and

g. Settlement Statement [Exhibit No. 49].

17. On April 20, 2006, after signing the documents described above in Fort Bend County, Ms. Sissom sent these documents, together with the April 18 cashier's...