In re Soto
| Decision Date | 18 July 2013 |
| Docket Number | CASE NO. 13-02084 (ESL) |
| Parties | In re: DOMINGA SERRANO SOTO Debtor |
| Court | U.S. Bankruptcy Court — District of Puerto Rico |
This case is before the court upon the Chapter 7 Trustee's Objection to Claimed Exemptions (the "Objection", Docket No. 8), the Debtor's Reply thereto (Docket No. 11) and the Chapter 7 Trustee's [Sur-]Reply (Docket No. 12). The Chapter 7 Trustee moves for the denial of the Debtor's homestead exemption alleging that although the homestead deed was filed pre-petition at the Puerto Rico Property Registry, it was not recorded or registered by the Property Registrar pre-petition, which contravenes Article 9 of Puerto Rico's Home Protection Act No. 195 enacted on September 13, 2011, as amended by Act No. 257 of September 15, 2012 (the "2011 PR Home Protection Act"), and therefore fails to comply with subsequent Article 12. Conversely, the Debtor sustains that she filed her homestead deed at the Property Registry pre-petition, which complies with the 2011 PR Home Protection Act. The Chapter 7 Trustee also moves for the disallowance of exemptions on personal property claimed under the general statute of Puerto Rico's Code of Civil Procedure without any reference to the specific subsection under which they are claimed. For the reasons stated below, the Chapter 7 Trustee's Objection is hereby denied in part.
On February 14, 2013, the Debtor executed Deed No. 7 before Notary Public Jorge Figueroa Ortiz (the "Homestead Deed") declaring her principal residence as her homestead under the 2011 Home Protection Act. See Docket No. 12, pp. 9-12. The Homestead Deed was filed at the Puerto Rico Property Registry on February 19, 2013. See Docket Nos. 12, p. 13, and 17, p. 4.
On March 18, 2013, the Debtor filed a voluntary Chapter 7 Bankruptcy Petition with its corresponding schedules (Docket No. 1). Although the Debtor did not claim as exempt her social security benefits in Schedule C (Docket No. 1, p. 24), she disclosed a social security monthly income of $795 in Schedule I (Docket No. 1, p. 32).
The meeting of creditors was held on April 18, 2013 and closed on June 13, 2013 (Docket Nos. 7 and 13).
On May 15, 2013, the Chapter 7 Trustee filed an Objection to Claimed Exemptions (Docket No. 8) alleging that the Debtor failed to comply with the requirements of the 2011 PR Home Protection Act and therefore her claimed homestead exemption should be disallowed. She further argues that the exemptions claimed on the bedroom, dining room, kitchen utensils, living room, oven, refrigerator, stove, TV, washing machine, clothes and personal effects were not listed with sufficient particularity and thus should also be disallowed. The Chapter 7 Trustee also sustains that in Puerto Rico there is no exemption for kitchen utensils, and therefore that exemption should be disallowed. As to the social security benefits, which were not claimed as exempt in Schedule C (Docket No. 1, p. 24), the Chapter 7 Trustee sustains that because the Debtor elected the Puerto Rico exemption scheme, she is barred from claiming federal exemptions, and in any case, the Debtor did not claim such exemption in Schedule C.
On May 20, 2013, the Debtor filed Amended Schedules B & C to correct the description of the properties and to correct the claimed exemptions (Docket No. 9). In Amended Schedule C, the Debtor claimed as exempt the social security benefits under 42 U.S.C. § 407 (Docket No. 9, p. 5).
On May 29, 2013, the Debtor filed a Reply to the Trustee's Objection to Claimed Exemption (Docket No. 11) alleging that Amended Schedule C (Docket No. 9) provides sufficient detail to claim the exemptions listed therein. The Debtor further sustains that the exemption claimed for social security benefits is proper under 42 U.S.C. § 407. As to the homestead exemption, the Debtor argues that the Homestead Deed was filed at the Property Registry pre-petition on February 19, 2013, which complies with the 2011 PR Home Protection Act.
On June 12, 2013, the Chapter 7 Trustee filed a Reply to Debtor's Opposition to Trustee's Objection to Claimed Exemptions & Renewed Objection to Claimed exemption filed on May 20, 2013 (Docket No. 12) arguing that the Debtor does not meet the requirements of Article 9 of the 2011 PR Home Protection Act, and thus her homestead exemption must be disallowed. In regards to the bedroom, dining room, kitchen utensils, living room, oven, refrigerator, stove, TV, washing machine, clothes and personal effects, the Chapter 7 Trustee insists that the Debtor has failed toprovide the specific subsections of 32 L.P.R.A. § 1130 under which each exemption is claimed, which warrants the disallowance of the exemption. She also withdrew her objection to the exemption claimed on the Debtor's social security benefits.
On July 9, 2013, the the Debtor filed a second Amended Schedule C (Docket No. 16) to specify the corresponding subsections of the Puerto Rico exemption statute under which each is claimed. The next day, on July 10, 2013, the Debtor filed a Sur-Reply to Trustee's Reply to Debtor's Opposition to Trustee's Objection to Claimed Exemption and Renewed Objection to Claimed Exemption Filed May 20, 2013 (Docket No. 17) arguing that the second Amended Schedule C (Docket No. 16) provides sufficient specificity in regards to the exemptions claimed on the Debtor's personal property. In regards to the homestead exemption, the Debtor reiterates that she complied with Article 9 of the 2011 PR Home Protection Act by filing the Homestead Deed prior to filing the instant bankruptcy petition. Furthermore, the Debtor asserts that Article 53 of the Puerto Rico Mortgage Law provides that the registration of the Homestead Deed will relate back to the date of its filing.
When a debtor files a bankruptcy petition, all of his/her/its assets become property of the bankruptcy estate [11 U.S.C. § 541] subject to the debtor's right to reclaim certain property as exempt under 11 U.S.C. § 522. See Taylor v. Freeland & Kronz, 503 U.S. 638, 642 (1992). A property becomes exempt by operation of law when no objections are filed. See 11 U.S.C. § 522(l). But the mere fact that debtors claim an exemption does not necessarily mean that they are entitled to it, since there must be compliance with statutory requirements and then an order that effect. See 9A Am. Jur. 2d Bankruptcy § 1392; In re Gutierrez Hernández, 2012 Bankr. LEXIS 2735 at *8, 2012 WL 2202931 at *2 (Bankr. D.P.R. 2012); In re Rolland, 317 B.R. 402, 412 (Bankr. C.D.Cal. 2004); In re Colvin, 288 B.R. 477, 483 (Bankr. E.D.Mi. 2003); Carlucci & Legum v. Murray (In re Murray), 249 B.R. 223, 230 (E.D.N.Y. 2000). Exemptions are an integral component of a debtor's fresh start and thus are liberally construed. Hon. Nancy C. Dreher, Hon. Joan N. Feeney and Michael J. Stepan, Esq., Bankruptcy Law Manual § 5:34 (5th ed. 2012-2); In re Farr, 278 B.R. 171,48 (B.A.P. 9th Cir. 2002) (); In re Toppi, 378 B.R. 9, 11 (Bankr. D. Me. 2007) (); In re Wegrzyn, 291 B.R. 2, 8-9 (Bankr. D. Mass. 2003) (); Christo v. Yellin (In re Christo), 228 B.R. 48, 50 (B.A.P. 1st Cir. 1999) aff'd 192 F.3d 36 (1st Cir. 1999). A "fresh start", however, does not translate to a "head start". In re Goldberg, 59 B.R. 201, 208 (Bankr. N.D. Okla. 1986). "The basis for exemption laws is that by providing a debtor to retain a minimum level of property, the debtor and his or her family will not be completely destitute and thus a burden to society." Id. at 208. "A fundamental component of an individual debtor's fresh start in bankruptcy is the debtors ability to set aside certain property as exempt from the claims of creditors." Allan N. Resnick and Henry J. Sommes, 4 Collier on Bankruptcy ¶ 522.01 (16th ed. 2013).
Homestead exemptions are to be construed liberally on behalf of the homesteader. In re Dougan, 484 B.R. 529, 534 (Bankr. D. Mass. 2013); In re Haseltine, 2007 Bankr. LEXIS 3449, at *4, 2007 WL 2932807, at *2 (Bankr. D.N.H. 2007); In re Rolland, 317 B.R. at 413; Garran v. SMS Fin. V, LLC (In re Garran), 338 F.3d 1, 6 (1st Cir. 2003); In re Arrol, 207 B.R. 662,665 (Bankr. N.D. Cal. 1997).
A state's1 rules of construction must be followed by federal courts when construing state-law exemptions. See Goldman v. Salisbury (In re Goldman), 70 F.3d 1028, 1029 (9th Cir. 1995). Generally, federal courts must construe all exemption statutes liberally, in the debtor's favor, "to reflect their remedial purposes." Caron v. Farmington Nat'l Bank (In re Caron), 82 F.3d 7, 10 (1st Cir. 1996). Also see Shamban v. Perry (In re Perry), 357 B.R. 175, 180 (B.A.P. 1st Cir. 2006).
In Puerto Rico, exemptions are construed in the most liberal light to effectuate the humanitarian purpose of the lawmaker. Laguna v. Quiñones, 23 P.R. R. 358, 360-361, 23 D.P.R. 386, 389 (1916); Marty Pérez v. Ramírez Cuerda, 75 P.R.R. 808, 814, 75 D.P.R. 858, 864 (1954).Questions as to the applicability of a Puerto Rico exemption must be resolved in favor of the exemption. Quintana v. Superior Court, 104 P.R. Off. Trans. Part I 26, 28, 104 D.P.R. 18, 20 (1975); Marty Pérez v. Ramírez Cuerda, 75 P.R.R. 808, 814, 75 D.P.R. 858, 865 (1954). When interpreting a Puerto Rico statute, its wording cannot be applied mechanically, but by exercising reason. See Pueblo v. Pagan Medina, 99 P.R.R. 731, 737, 99 D.P.R. 753, 759 (1971). Puerto Rico's Supreme Court has refused to follow literal interpretations of a statute if doing leads to an absurd result that is not in accordance with its legislative intent. Pueblo v. Seda Álvarez, 82 D.P.R. 719,...
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