In re Sueng Oh Cho, Case No.: 11-75595-ast

• Court: U.S. Bankruptcy Court — Eastern District of New York
• Writing for the Court: Alan S. Trust
• Decision Date: 24 April 2012
• Docket Number: Case No.: 11-75595-ast
• Citation: In re Sueng Oh Cho, Case No.: 11-75595-ast (Bankr. E.D. N.Y. Apr 24, 2012)
• Parties: In re: SUENG OH CHO and KUEM JOO CHO, Debtors.

In re: SUENG OH CHO and KUEM JOO CHO, Debtors.

Case No.: 11-75595-ast

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK

Dated: April 24, 2012

Chapter 7

DECISION AND ORDER GRANTING IN PART TRUSTEE'S

MOTION TO COMPEL TURN OVER OF NON-EXEMPT ASSETS

Pending before the Court is the Chapter 7 trustee's motion (the "Motion") to compel the co-debtor, Sueng Oh Cho ("Sueng"), to turn over surplus funds he received postpetition from the prepetition, private repossession sale of his 2007 Honda Pilot, which funds Sueng claims as exempt. For the reasons set forth herein, the Motion is granted in part.

BACKGROUND

Shortly before the filing of the instant bankruptcy case, Sueng's vehicle, a 2007 Honda Pilot (the "Pilot"), was repossessed by the secured creditor, American Honda Finance Corporation a/k/a Honda Financial Services ("Honda Financial"). Honda Financial sold the Pilot at a private auction held on July 29, 2011 for $15,200.00. This sale resulted in a surplus of $4,851.47 (the "Surplus") after payment of Honda Financial's secured claim of $10,083.53 and auction fees of $265.00. The Surplus was then delivered to Sueng in the form of a check; while it is unclear when the check was actually mailed, the parties agree that Sueng did not receive or deposit the check until after this bankruptcy case was filed.¹

On August 8, 2011 (the "Petition Date"), Sueng and Keum Joo Cho ("Keum") (together with Sueng, the "Debtors") filed a voluntary petition for relief under Chapter 7 of the UnitedStates Bankruptcy Code.² Along with the Petition, Debtors filed Schedule B and Schedule C which identified Debtors' personal property and the property Debtors' claim as exempt. [dkt item 1] Debtors elected to use the New York exemptions. Debtors jointly claimed a $326.00 exemption in personal property under New York C.P.L.R. § 5205(a)(9) on Schedule C, arising from cash on hand and from four bank accounts (the "Joint Funds"). See Appendix 1 to this Decision and Order. Without evidence to the contrary, the Court deems the Joint Funds to be jointly owned by the Debtors. See In re Jacobs, 394 B.R. 646, 675 (Bankr. E.D.N.Y. 2008) (discussing N.Y. BANKING LAW § 675(b) (McKinney 2011)); Crane v. Crane, 202 A.D.2d 665, 666, 609 N.Y.S.2d 632, 633 (N.Y. App. Div. 2d Dep't 1994).

On September 14, 2011, the first meeting of creditors was held in accordance with § 341, and Robert L. Pryor duly qualified as the permanent Chapter 7 trustee (the "Trustee"). The Trustee was advised by Debtors at the § 341 Meeting that the Pilot had been repossessed prepetition by Honda Financial resulting in the Surplus, and that Sueng had received and deposited the Surplus postpetition.

By letter dated October 18, 2011, the Trustee made demand that Debtors turn over the entire Surplus.

Rather than turn the Surplus over, on November 3, 2011, Debtors filed an amendment to Schedule B [dkt item 14] to include an ownership interest in the Pilot, and an amendment to Schedule C [dkt item 15] to increase their cash exemption claim to $1,774.00 under N.Y. C.P.L.R. § 5205(a)(9), and to claim an exemption in the Pilot as a "Motor Vehicle" in the sum of $4,000.00 under N.Y. C.P.L.R. 5205(a)(8) (collectively the "Amended Schedules"). See Appendix 2 to this Decision and Order.

On November 22, 2011, the Trustee filed a motion seeking to compel Debtors to turn over the Surplus (the "Motion to Compel"). [dkt item 21]

On December 10, 2011, Debtors filed an objection to the Motion to Compel (the "Objection") [dkt item 25], in which Debtors acknowledged no longer owning the Honda, but argued, inter alia, that they are entitled to a $4,800.00 cash exemption with regard to the Surplus and accordingly are not required to turn over the Surplus.

On December 15, 2011, the Trustee filed a reply to Debtors' Objection (the "Reply") [dkt item 26], in which the Trustee argued that the Amended Schedules were improper based on both procedural and substantive infirmities, including a failure to serve the Amended Schedules in accordance with E.D.N.Y. Local Bankruptcy Rules ("LBR") 1009-1 and 4003-1, and that Debtors are not allowed to claim the cash derived from the Surplus as exempt.³

A hearing on the Motion to Compel was held on December 20, 2011. At the hearing, the Court directed Debtors to file and serve the Amended Schedules in accordance with E.D.N.Y. LBR 1009-1 and 4003-1 by December 27, 2011, to specifically address the exemptions they initially asserted in their Objection. The Court also set a deadline for supplemental submissions to be filed by January 10, 2012, after which the Motion to Compel would be under submission.

On December 26, 2011, Debtors filed but did not serve a second amended Schedule B [dkt item 28] and a second amended Schedule C (the "Second Amended Schedule C") [dkt item 29] (collectively the "Second Amended Schedules"). On their Second Amended Schedule C,

Debtors now claim a $5,000.00 cash exemption for the Surplus under N.Y. C.P.L.R.§ 5205(a)(9), in addition to the $326.00 in Joint Funds, and a $4,000.00 exemption in the Pilot under N.Y. C.P.L.R. § 5205(a)(8). See Appendix 3 to this Decision and Order.

On January 10, 2012, the Trustee filed a supplemental reply to Debtor's Objection [dkt item 31] in which the Trustee argued, inter alia, that the Second Amended Schedules were also not properly filed and served.

On March 2, 2012, the Court entered an Order that directed Debtors to file and serve the Second Amended Schedules by March 9, 2012, in accordance with the Local Bankruptcy Rules for the Eastern District of New York.

On March 7, 2012, Debtors filed an affidavit in compliance with E.D.N.Y. LBR 1009-1(a). [dkt item 38] Also on March 7, 2012, Debtors filed an affidavit of service whereby counsel affirmed under penalty of perjury that the Second Amended Schedules were served upon all parties in interest. [dkt item 39]

DISCUSSION

The two questions before the Court are (1) whether and to what extent may Sueng and/or Keum claim an exemption under New York law for the Surplus cash; and (2) whether Sueng and/or Keum may claim an exemption for the Pilot.

1. Availability of exemptions for cash under New York law

New York State residents who file for bankruptcy relief after January 21, 2011, have an option to select either New York state or federal exemptions; while New York had long been an "opt out" state, New York recently "opted in" and thus allows its residents to choose either the New York exemptions or the federal exemptions provided under the Bankruptcy Code. See 11 U.S.C. §§ 522(b), (d); N.Y. Debt. & Cred. Law § 285 (McKinney 2011). In this case, Debtors elected to claim the New York State exemptions.

The first issue is whether Debtors can claim an exemption for the Surplus. The parties agree that the applicable statutory provision is New York Debtor and Creditor Law ("DCL") § 283(2). Under DCL § 283(2), New York permits a $5,000.00 cash exemption for a debtor who "does not elect, claim, or otherwise avail" himself or herself of the state homestead exemption under New York C.P.L.R. § 5206, "or who has not claimed the maximum [$10,000.00] exemption in the aggregate for personal property under N.Y. C.P.L.R. § 5205."⁴ N.Y. DEBT. & CRED. LAW § 283(2); In re Howe, 2009 WL 2914229, at *3 (Bankr. N.D.N.Y. June 26, 2009) (citing In re Cinelli, 2006 WL 3545444, at *3 (Bankr. N.D.N.Y. Dec. 8, 2006) and In re Hill, 95 B.R. 293, 298 (Bankr. N.D.N.Y. 1988)). Exemptions are determined as of the petition date. See In re DeVries, 76 B.R. 917, 918 (Bankr. N.D.N.Y. 1987) (citations omitted).

The Trustee appears to argue, in part, that Debtors cannot exempt the Surplus as "cash" by intertwining New York C.P.L.R § 5205 and DCL § 283(2); the Trustee asserts that while DCL § 283(2) places a cap on the amount of "cash" Debtors could exempt, the statute only allows this exemption to be utilized if Debtors had an annuity to exempt. Reply at ¶ 12. [dkt item 26] However, this argument is not correct; DCL § 283(1) and 283(2) are alternative exemptions, and DCL § 283(2) does not require Debtors to possess a right to an annuityexemption in order to claim the contingent alternative bankruptcy exemption. See N.Y. DEBT. & CRED. LAW §§ 282, 283.

The Trustee also argues that the exemption for "cash" in DCL § 283(2) does not include the "'right to surplus money from sale of a motor vehicle' as part of its definition.'" Reply at ¶ 14. On this point, the Trustee is correct.

Under DCL § 283(2), "cash means currency of the United States at face value, savings bonds of the United States at face value, the right to receive a refund of federal, state and local income taxes, and deposit accounts in any state or federally chartered depository institution." N.Y. DEBT. & CRED. LAW § 283(2). Although exemptions are to be liberally construed in favor of the debtor, see In re Rasmussen, 2010 Bankr. LEXIS 2388, at *8 (Bankr. E.D.N.Y. July 20, 2010), bankruptcy courts have narrowly construed the meaning of "cash" and have strictly adhered to the categories listed in DCL § 283(2). See In re Quackenbush, 339 B.R. 845, 853-855 (S.D.N.Y. 2006) ("The prevailing view is that the definition of 'cash' in DCL § 283(2) is a narrow one."); In re Pless, 202 B.R. 663, 667 (Bankr. N.D.N.Y 1996) (settlement proceeds on deposit in debtor's attorney's escrow account were not "cash" under DCL § 283(2) because debtor only had an equitable interest in the funds until all the conditions of the settlement were performed); In re Hill, 95 B.R. 293 (Bankr. N.D.N.Y. 1988) (insurance proceeds received postpetition from personal property loss claim that arose prepetition belonged to the estate and were not "cash" under DCL § 283(2)); see also In re Lowe, 252 B.R. 614 (Bankr. W.D.N.Y. 2000) (accrued but unpaid profit-sharing distributions were not "cash" under DCL § 283(2) because they were not cash in hand).

Here, Sueng had a prepetition vested right to receive payment of the Surplus from the sale of the Pilot, even though he was not aware of...