In re Spears
| Decision Date | 26 April 2004 |
| Docket Number | No. HT 03-01234.,No. HT 03-01306.,No. HT 03-03959.,No. HT 03-00738.,HT 03-00738.,HT 03-01234.,HT 03-01306.,HT 03-03959. |
| Citation | 308 B.R. 793 |
| Parties | In re Bonnie May SPEARS, Debtor. In re Michael J. Sedgewick, Sr., Debtor. In re Ronnie Lynn Gillis, Debtor. In re Roger Alan Brehm, Debtor. |
| Court | U.S. District Court — Western District of Michigan |
Cody H. Knight, Kalamazoo, Michigan, for Bonnie Spears.
Michael E. Hall, Traverse City, Michigan, for Michael J. Sedgewick.
Patrick S. Fragel, Traverse City, Michigan, for Ronnie Lynn Gillis.
Paul I. Bare, Traverse City, Michigan, for Roger Brehm.
Ronald A. Schuknecht, Traverse City, Michigan, for the Chapter 7 Trustee.
The trustee in these Chapter 7 proceedings has objected to the claimed exemptions of property owned by the debtors pre-petition as tenants by the entirety with their non-filing spouses. Trustee's objection is sustained in part and denied in part. I conclude that the commencement of these bankruptcy proceedings severed the entireties estates. Consequently, each bankruptcy estate holds an undivided half interest in the subject property as a tenant in common with the non-filing spouse. The allowed Section 522(b)(2)(B)1 exemption in each case will be the difference between the value of the bankruptcy estate's undivided half interest and the amount of joint obligations owed by each debtor and his or her non-filing spouse. Trustee shall administer whatever non-exempt value there is in the subject property for the benefit of all creditors.
Bonnie May Spears filed her petition for relief under Chapter 7 of the Bankruptcy Code on January 21, 2003. James W. Boyd, a panel trustee, was appointed to administer the estate created when her petition was filed.
Ms. Spears is married. Included among the assets Ms. Spears owned immediately before the commencement of her Chapter 7 proceeding is an interest in real property located in Tustin, Michigan. She identified the Tustin property in her schedules as being owned as a tenant by the entirety with her non-filing spouse. She also indicated that the value of her interest in the property is $70,0002 and that her interest is unencumbered. Ms. Spears claims that her entire interest in the Tustin property is exempt.3 She asserts that her interest in the Tustin property is 4 She also relies upon Mich. Comp. Laws Ann. § 600.6023(1)(h) as a basis for the exemption of her interest in this property.
On March 10, 2003, Trustee filed a timely objection to Ms. Spears' claimed exemption of her interest in the Tustin property. The relevant portion of his objection states:
5. The Trustee objects to the Debtor's exemptions based on the following:
a. The Debtor seeks to exempt the entire $70,000.00 value. Upon the filing of the Bankruptcy Case, the tenancy by the entireties is terminated and the property is then owned as tenancy in common between the Bankruptcy Estate and the Debtor's non-filing spouse. Since the property is owned as a tenancy in common, the Debtor is therefore limited to exempting at most half of the value of the property, but more probably $3,500.00 as set forth in MCL 600.6023.
b. MCL 600.6023(1)(h) allows the exemption by a Debtor of a maximum of $3,500.00. The Debtor in this case seeks to exempt $70,000.00 and such exemption is impermissible under the state as cited.
c. If the Debtors [sic] seeks to exempt the property as tenants by the entireties with her husband, the above-referenced claim of exemptions is improper because pursuant to In re Trickett 14 B.R. 85; 5 CBC 2nd 85 [(Bankr.W.D.Mich.1981)] (Bankruptcy Western District of Michigan) and In re Grosslight, 12 CBC 2nd 525; 757 F.2d 773 [(6th Cir.1985)], a Chapter 7 Trustee is allowed to administer property held as tenants by the entireties to the extent of any joint creditors.
Michael J. Sedgewick, Sr.
Michael J. Sedgewick, Sr., filed his petition for relief under Chapter 7 of the Bankruptcy Code on January 31, 2003. Mr. Boyd was appointed to administer the bankruptcy estate created when his petition was filed.
Mr. Sedgewick is married. Included among the assets Mr. Sedgewick owned immediately before the commencement of his Chapter 7 proceeding is an interest in property located in Rapid City, Michigan. Mr. Sedgewick identified the Rapid City property in his schedules as being owned as a tenant by the entirety with his non-filing spouse. He indicated that the value of his interest in the property is $120,000. He also indicated that his interest is subject to a $15,000 lien.5
Mr. Sedgewick claims that his entire interest in the Rapid City property is exempt.6 He asserts that his interest in the Rapid City property is exempt pursuant to In re Trickett, 14 B.R. 85, with respect to individual creditors. He also relies upon Mich. Comp. Laws Ann. § 600.6023(1)(h) as a basis for the exemption of his interest in this property. Finally, Mr. Sedgewick indicates that he intends to reaffirm "joint debts."
On March 10, 2003, Trustee filed a timely objection to Mr. Sedgewick's claimed exemption of his interest in the Rapid City property. The objection is similar to the objection Trustee filed with respect to the exemption claimed by Ms. Spears.
Ronnie Lynn Gillis filed his petition for relief under Chapter 7 of the Bankruptcy Code on February 3, 2003. Mr. Boyd was appointed to administer the estate created when his petition was filed.
Mr. Gillis is married. Included among the assets Mr. Gillis owned immediately before the commencement of his Chapter 7 proceeding is an interest in real property located in Hersey, Michigan. He identified the Hersey property in his schedules as being owned as a tenant by the entirety with his non-filing spouse. He also indicated that the value of his interest in the property is $30,000 and that his interest is unencumbered.7
Mr. Gillis claims that his entire interest in the Hersey property is exempt. He asserted that his interest in the Hersey property is exempt pursuant to 11 U.S.C. § 522(b)(2)(B) and Mich. Comp. Laws Ann. § 600.6018.8
On March 6, 2003, Trustee filed a timely objection to the exemption claimed by Mr. Gillis in the Hersey property. The objection is similar to the objection Trustee filed with respect to the exemptions claimed by Ms. Spears and Mr. Sedgewick.
Roger Alan Brehm filed his petition for relief under Chapter 7 of the Bankruptcy Code on March 26, 2003. Mr. Boyd was appointed to administer the estate created when his petition was filed.
Mr. Brehm is married. Included among the assets Mr. Brehm owned immediately before the commencement of his Chapter 7 proceeding is an interest in real property located in Wexford County, Michigan. He identified the Wexford County property in his schedules as being owned as a tenant by the entirety with his non-filing spouse. He also indicated that the value of his interest in the property is $84,000 and that his interest is unencumbered.9
Mr. Brehm claims that his entire interest in the Wexford County property is exempt.10 He asserts that his interest in the Wexford County property is exempt pursuant to Hoyt v. Winstanley, 221 Mich. 515, 191 N.W. 213 (1922).
On May 22, 2003, Trustee filed a timely objection to the exemption claimed by Mr. Brehm in the Wexford County property. The objection is similar to the objection Trustee filed with respect to the exemptions claimed by the other three debtors.
On August 1, 2003, a hearing was held concerning Trustee's objections to the exemptions claimed by Ms. Spears and Messrs. Sedgewick and Brehm.11 I had issued a scheduling order prior to that hearing that identified three issues pertinent to the Trustee's objections:
1. Whether the filing of a bankruptcy petition by one spouse but not the other results in a severance of the entireties estate owned by the debtor and the non-filing spouse.
2. If a severance occurs, whether actuarial factors would require the two undivided interests to be unequal in size.
3. If a severance occurs, whether the debtor's undivided interest in the property must still be administered for the exclusive benefit of the debtor's and non-filing spouse's joint creditors.
All of the parties filed pre-hearing briefs and I heard oral argument by all of the parties on August 1, 2003. No proofs were offered. I took each of the objections under advisement. All of the parties were given the opportunity to file post-hearing briefs. However, only Trustee and Ms. Spears availed themselves of this opportunity.
An "estate" is created each time a bankruptcy proceeding is commenced. 11 U.S.C. § 541(a). Like a corporation or a trust, a bankruptcy estate is a distinct legal entity. Farmer v. Crocker National Bank (In re Swift Aire Lines, Inc.), 30 B.R. 490, 495 (9th Cir. BAP 1983); In re Dow Corning Corp., 270 B.R. 393, 398-99 (Bankr.E.D.Mich.2001); In re Roy Stanley, Inc., 217 B.R. 23, 25 (Bankr.N.D.N.Y.1997); In re SeaEscape Cruises, Ltd., 201 B.R. 321, 323 (Bankr.S.D.Fla.1996). The bankruptcy estate exists apart from the debtor. It acts through its legal representative, the bankruptcy trustee. 11 U.S.C. § 323(a).12
The bankruptcy estate is the foundation upon which the entire bankruptcy process rests.13 When the bankruptcy trustee acts, she acts as the representative of the bankruptcy estate, not as a representative of the debtor. For example, if the bankruptcy trustee liquidates property of the estate pursuant to Section 363, she conveys title to that property on behalf of the bankruptcy estate, not on behalf of the debtor. In re Quinn, 299 B.R. 450, 454 (Bankr.W.D.Mich.2003). The bankruptcy estate may be a party to a contract. See, In re Macomb Occupational Health Care, LLC, 300 B.R. 270, n. 11 (Bankr.E.D.Mich.2003). The bankruptcy estate may also be liable...
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