In re Staniforth
Decision Date | 24 April 1990 |
Docket Number | Bankruptcy No. WU7-88-02678. |
Parties | In re Thomas J. STANIFORTH, Debtor. |
Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Western District of Wisconsin |
James D. Sweet, William J. Rameker, Madison, Wis., for debtor.
Arthur L. Eberlein, Wausau, Wis., Trustee.
PROCEDURAL POSTURE
This matter comes before the Court on the trustee's objection to the Debtor's amended claim for an exemption of an Individual Retirement Account (IRA) under WIS.STAT. 815.18(31). The Court has jurisdiction to decide this case under 28 U.S.C. § 157(b)(2)(B). James D. Sweet and William J. Rameker of Murphy & Desmond, S.C., appear for the Debtor; Arthur L. Eberlein, trustee, appears for himself.
Thomas J. Staniforth (Debtor) is a self-employed dentist located in Wisconsin Rapids, Wisconsin. The Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code on November 10, 1988. At that time, the Debtor listed an IRA in the amount of $13,775.00 on his Schedule B-2 but did not declare the IRA exempt under Schedule B-4. On August 28, 1989, the Debtor amended his Schedule B-4 to declare the IRA exempt under WIS.STAT. 815.18(31). On December 1, 1989, the trustee citing Matter of Woods, 59 B.R. 221 (Bankr.W.D.Wis.1986) objected to the exemption of the IRA on the grounds that an IRA is not exempt as an employee retirement benefit under WIS.STAT. 815.18(31).
Whether the Bankruptcy Court is powerless to decide a dispute between a debtor and a trustee regarding the validity of a debtor's claimed exemption simply because the trustee failed to timely object to the exemption.
Whether the Debtor's IRA is exempt under WIS.STAT. 815.18(31).
STATUTES
Bankruptcy Rule 1009(a) states:
A voluntary petition, list, schedule, statement of financial affairs, statement of executory contracts, or Chapter 13 Statement may be amended by the debtor as a matter of course at any time before the case is closed. The debtor shall give notice of the amendment to the trustee and to any entity affected thereby. On motion of a party in interest, after notice and a hearing, the court may order any voluntary petition, list, schedule, statement of financial affairs, statement of executory contracts, or Chapter 13 Statement to be amended and the clerk shall give notice of the amendment to entities designated by the court.
Bankruptcy Rule 4003(b) states:
The trustee or any creditor may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting of creditors held pursuant to Rule 2003(a) or the filing of any amendment to the list unless, within such period, further time is granted by the court. Copies of the objections shall be delivered or mailed to the trustee and to the person filing the list and the attorney for such person.
11 U.S.C. § 105 states:
(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
WIS.STAT. 815.18 states in pertinent part:
The Debtor argues that the Court must apply a two-part test when examining a trustee's objection to exemptions under the Bankruptcy Code: 1) whether the objection to the exemption was filed timely by the objecting party; 2) whether the claimed exemption is exempt under the law. The Debtor argues that if the objection is not timely filed, the court may not reach the second part of the test because the objecting party has no standing to request such analysis. The Debtor cites Matter of Brandstaetter, 767 F.2d 324 (7th Cir.1985); In re Woerner, 66 B.R. 964 (Bankr.E.D.Pa. 1986); In re Kretzer, 48 B.R. 585 (Bankr.D. Nev.1985); and Matter of Gullickson, 39 B.R. 922 (Bankr.W.D.Wis.1984).
The trustee argues that failure to timely object to an exemption will not create an exemption which otherwise would have no legal basis. The trustee argues that a debtor must have a good-faith statutory basis for claiming an exemption. Debtors may not simply exempt property by claiming property as exempt. Accordingly, a failure to object to such an unlawful exemption will not transform an unlawful exemption into a lawful exemption. The trustee cites Matter of Dembs, 757 F.2d 777, at 780 (6th Cir.1985); In re Ehr, 116 B.R. 665 (Bankr.E.D.Wis.1988); In re Rollins, 63 B.R. 780, at 783 (Bankr.E.D.Tenn. 1986); and In re Bennett, 36 B.R. 893 (Bankr.W.D.Ky.1984) for support.
The cases cited by the Debtor do not support the Debtor's argument. While the facts in Brandstaetter were similar to the facts presently before the Court, neither the legal issue presented by the Brandstaetter case nor the legal reasoning used by the Brandstaetter court apply to the present case. The Brandstaetter case did not raise the issue of the Bankruptcy Court's power to prevent an abuse of process under 11 U.S.C. § 105 by deciding a dispute in an unsettled area of a state's exemption law despite a party's failure to timely object. The Brandstaetter court did not decide whether the claimed exemption at issue was a valid exemption. Furthermore, the Brandstaetter court did not rely on the statutory deadline under Bankruptcy Rule 4003 or the Bankruptcy Court's deadline for filing objections. 767 F.2d at 327. The Brandstaetter court relied on the time limit for objections to discharge and exceptions to discharge in reasoning that the trustee filed an untimely objection.1 Id. Accordingly, the decision in Brandstaetter does not control the present case.2
The Debtor's argument finds even less support in the Bankruptcy Code than it does in the cases cited. When stripped of its ersatz terms of art, the Debtor's argument is reduced to the following proposition: a debtor may claim an exemption for anything so long as the trustee fails to timely object. That which was claimed exempt is exempt by default and the Bankruptcy Court may not reach the merits of the case to prevent an abuse of process. The Debtor's argument fails for two reasons. First, a debtor may not claim as exempt anything he chooses. A debtor may only claim property listed under 11 U.S.C. § 522(b)(1) or (2) as exempt property. "A debtor cannot make property exempt simply by claiming it as exempt where there is no apparent legal basis for the exemption."3In re Ehr, 87-2974, slip op. (Bankr.E.D.Wis.1988); In re Owen, 74 B.R. 697 (Bankr.C.D.Ill.1987). See also, Matter of Dembs, 757 F.2d 777, at 780; Bass v. Hall, 79 B.R. 653 (W.D.Va.1987); In re Rollins, 63 B.R. 780 (Bankr.E.D. Tenn.1986); and In re Bennett, 36 B.R. 893 (Bankr.W.D.Ky.1984). If, and only if, the property is exempt under 11 U.S.C. § 522(b)(1) or 522(b)(2), does failure to object turn claimed exemptions into exemptions. 11 U.S.C. § 522(l). Secondly, the Bankruptcy Court may take any action to prevent an abuse of process. 11 U.S.C. § 105. The Bankruptcy Court "has the inherent power to correct mistakes and errors in order to prevent manifest injustice." In re Replogle, 70 B.R. 444 (Bankr.D.Mont. 1987).
In the present case, for the Debtor to receive an exemption for property...
To continue reading
Request your trial