In re Steen, Bankr. No. 10-10206

• Decision Date: 13 April 2012
• Docket Number: Bankr. No. 10-10206
• Parties: In re: KORYN MICHELE STEEN SSN/ITIN xxx-xx-7373 Debtor.
• Court: U.S. Bankruptcy Court — District of South Dakota

In re: KORYN MICHELE STEEN SSN/ITIN xxx-xx-7373 Debtor.

Bankr. No. 10-10206

UNITED STATES BANKRUPTCY COURT DISTRICT OF SOUTH DAKOTA

Dated: April 13, 2012

Chapter 7

DECISION RE: TRUSTEE'S MOTION FOR TURNOVER AND OBJECTION TO EXEMPTIONS

The matters before the Court are Trustee Forrest C. Allred's Motion for Turnover and Objections to Claimed Exempt Property. These are core proceedings under 28 U.S.C. § 157(b)(2). The Court enters these findings and conclusions pursuant to Fed.Rs.Bankr.P. 7052 and 9014(c). For the reasons discussed below, the Court will order Debtor to turn over a motorcycle and the unpaid portions, as of the petition date, of an alimony award and a property settlement payment owed Debtor by Debtor's former spouse.

I.¹

Koryn Michele Steen and Randall G. Cragoe were divorced February 12, 2010. Under the terms of the state divorce court's Findings of Fact and Conclusions of Law and attendant Judgment and Decree of Divorce (doc. 27 at 4-19), Steen was awarded, inter alia, a 1989 Harley Davidson Heritage Softail motorcycle, a property settlement payment of $5,000.00, and alimony beginning March 1, 2010 of $1,000.00 per month for 36 months.² Cragoe appealed the divorce judgment.

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Steen ("Debtor") filed a chapter 7 petition in bankruptcy on September 17, 2010. On the petition date, Cragoe still owed Debtor $4,535.00 of the $5,000.00 property settlement and 34 months of alimony at $1,000.00 per month and Debtor did not have possession of the motorcycle, though she did obtain possession later. Debtor did not include this property on her bankruptcy schedules.³

On August 29, 2011, which was more than 180 days after Debtor's petition was filed, the South Dakota Supreme Court summarily affirmed the divorce court's judgment.⁴ Thereafter, Trustee Allred filed a Motion for Turnover (doc. 15), seeking several nonexempt assets from Debtor, including the unpaid alimony, the unpaid property settlement, and the motorcycle awarded her in the divorce.

Debtor amended her schedules of estate assets (doc. 19) to include the motorcycle valued at $3,000.00. She claimed a portion of its value exempt under S.D.C.L. § 43-45-4. Debtor still did not schedule the unpaid property settlement

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payment or any of the alimony Cragoe owed her. In her response to the trustee's turnover motion (doc. 20), Debtor said the property awarded her in the divorce was not property of the estate under 11 U.S.C. § 541(a)(5)(B) because her interest in them had not matured within 180 days of the filing of her petition. Debtor further argued, citing Kelly v. Jeter (In re Jeter), 257 B.R. 907 (B.A.P. 8th Cir. 2001), her right to alimony was not part of the bankruptcy estate under § 541(a)(5)(B) because it was for her support rather than a division of property.

A hearing on the trustee's turnover motion was held December 8, 2011. The parties agreed to submit the matter on stipulated facts, stipulated issues, and briefs.

While the turnover motion was pending, Trustee Allred filed Objections to Claimed Exempt Property (doc. 26). He argued Debtor had stated two different exemption amounts for the motorcycle: $1,529.23 in the amendment, but $852.21 on the actual amended schedule.⁵ Debtor incorporated her earlier response to the trustee's turnover motion into her response to the trustee's objection to exemptions (doc. 33). The parties subsequently obtained the Court's permission to submit both the turnover motion and the objection to exemptions on stipulated facts, stipulated issues, and briefs (doc. 41).

The parties presented the following issues to the Court: (1) whether the property awarded Debtor by the divorce court was property of the estate within the meaning of 11 U.S.C. § 541, where Cragoe's appeal of the judgment was pending on the petition date; and (2) if the property awarded by the divorce court is property of the estate despite Cragoe's then-pending appeal, whether Debtor's interest in or right

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to the motorcycle, the remainder of the $5,000.00 lump-sum property settlement payment, and the remainder of the $36,000.00 of alimony are each, as individual items, property of the estate.⁶

II.

Property of a bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). When ascertaining the existence and scope of a debtor's legal or equitable interests in property, courts look to state law or other nonbankruptcy law. Butner v. United States, 440 U.S. 48, 54 (1979).

The nature and extent of the debtor's interest in property are determined by state law. [Cite omitted.] Property rights under section 541 are defined by state law. Butner[, 440 U.S. at 55.] However, once that determination is made, federal bankruptcy law dictates to what extent that interest is property of the estate.

N.S. Garrott & Sons v. Union Planters Nat'l Bank of Memphis (In re N.S. Garrott & Sons), 772 F.2d 462, 466 (8th Cir. 1985). The broad scope of estate property includes causes of action. Whetzal v. Alderson (In re Alderson), 32 F.3d 1302, 1303 (8th Cir. 1994) (quoting United States v. Whiting Pools, Inc., 462 U.S. 198, 205 & n.9 (1983)). The case trustee steps into a debtor's shoes and takes whatever interests the debtor had on the petition date. Stumpf v. Albracht, 982 F.2d 275, 277 (8th Cir. 1992).

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Certain property is excluded from a bankruptcy estate by operation of law. 11 U.S.C. § 541(b), (c)(2), and (d). Excluded property includes, for example, a debtor's interest as a lessee under certain types of leases and some types of accounts for retirement or education purposes. See, e.g., 11 U.S.C. § 541(b)(2), (3), (5), (6), and (7). Also excluded from a bankruptcy estate is property of the debtor that is subject to a restriction on transfer that is enforceable under "applicable nonbankruptcy law." 11 U.S.C. § 541(c)(2). "Applicable nonbankruptcy law" includes state spendthrift trust laws, as well as nonbankruptcy federal law. Patterson v. Shumate, 504 U.S. 753, 756-765 (1992); Wear v. Green (In re Green), 967 F.2d 1216, 1217 (8th Cir. 1992). An example of property excluded from the estate by operation of nonbankruptcy federal law is Social Security benefits. See Carpenter v. Ries (In re Carpenter), 614 F.3d 930, 936-37 (8th Cir. 2010).

The burden of establishing, by a preponderance of the evidence, that a particular asset is property of the bankruptcy estate rests with the proponent, usually the case trustee. Evans v. Robbins, 897 F.2d 966, 968 (8th Cir. 1990) (cites therein); DeBold v. Case (In re Tri-River Trading, LLC), 329 B.R. 252, 263-64 (B.A.P. 8th Cir. 2005), aff'd, 452 F.3d 756 (8th Cir. 2006). If a prima facie case is made, the burden of going forward shifts to the debtor to show the asset is excluded from the estate, though the final burden rests with the proponent. Tri-River Trading, 329 B.R. at 263.

Once property is determined to be property of the estate, 11 U.S.C. § 522(f) allows a debtor to withdraw some of it by a claim of exemption at a stated value. Schwab v. Reilly, __ U.S. __, 130 S.Ct. 2652, 2657 (2010). Exempt property is not liquidated by the case trustee to pay creditors. 11 U.S.C. § 522(b) and (c); Owen v. Owen, 500 U.S. 305, 308-09 (1991). Most debtors filing bankruptcy in the District of South Dakota look to the laws of the state of South Dakota to define the allowed

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exemptions. 11 U.S.C. § 522(b)(3)(A) and S.D.C.L. § 43-45-13.

A claimed exemption is presumptively valid. Danduran v. Kaler (In re Danduran), 657 F.3d 749, 754 (8th Cir. 2011). Any party objecting to a claimed exemption has the burden to prove, by a preponderance of the evidence, the exemption was not validly claimed. Fed.R.Bankr.P. 4003(c); In re Meyer, 433 B.R. 739, 744-45 (Bankr. D. Minn. 2010) (cites therein). If the objector meets his burden, the burden of production shifts to the debtor to show the exemption was properly claimed. Danduran, 657 F.3d at 754.

III.
Property of the Estate.

The divorce court entered a dispositive order pre-petition entitling Debtor to the motorcycle, a $5,000.00 property settlement payment, and 36 monthly payments of $1,000.00 alimony.⁷ S.D.C.L. § 15-6-54(a) (a judgment is the final determination of the rights of the parties in an action or proceeding); § 15-6-58 ("A judgment or an order becomes complete and effective when reduced to writing, signed by the court or judge, attested by the clerk and filed in the clerk's office."); § 15-18-21 (a judgment is subject to levy); § 43-1-1 (a thing that may be owned is property); § 43-42-1(a thing in action is a right to recover money by a judicial proceeding); § 43-42-2 (a thing in action arising from an obligation may be transferred by the owner); Aune v. B-Y

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Water Dist., 505 N.W.2d 761 (S.D. 1993) (South Dakota law permits the execution, levy, and sale of a judgment as an asset in order to satisfy an earlier judgment and an appeal by a judgment debtor does not stay the execution of a judgment if a supersedes bond is not filed) (citing S.D.C.L. § 15-18-17⁸); Watt v. Watt, 312 N.W.2d 707, 711 (S.D. 1981) (pre-judgment...