In re Sumerell

• Decision Date: 12 April 1996
• Docket Number: Bankruptcy No. 95-20727.
• Citation: 194 BR 818
• Parties: In re Craven H. SUMERELL and Amy D. Sumerell, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

194 B.R. 818 (1996)

In re Craven H. SUMERELL and Amy D. Sumerell, Debtors.

Bankruptcy No. 95-20727.

United States Bankruptcy Court, E.D. Tennessee.

April 12, 1996.

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COPYRIGHT MATERIAL OMITTED

Fred M. Leonard, Bristol, Tennessee, for Craven H. Sumerell and Amy D. Sumerell.

David S. Bunn, Massengill, Caldwell, Hyder & Bunn, P.C., Bristol, Tennessee, for Wachovia Bank of South Carolina.

MEMORANDUM

MARCIA PHILLIPS PARSONS, Bankruptcy Judge.

This case is presently before the court upon the objection filed by Wachovia Bank of South Carolina ("Wachovia") to the debtors' claim of exemptions in certain personal property owned by them. Wachovia alleges that the exemptions should be denied because the debtors have substantially undervalued their property and have acted in bad faith by their prepetition transfers of certain assets and their failure to list these assets in their schedules. For the reasons set forth below, the court will sustain the objection with respect to the majority of the exemptions claimed by the debtor, the court having concluded that the debtors have incorrectly valued their household property at liquidation value.

I.

This joint chapter 7 case was filed by the debtors, husband and wife, on May 18, 1995. Along with the filing of the petition, the debtors filed their required schedules and statements, including Schedule B, the List of Personal Property and Schedule C, the List of Property Claimed As Exempt. Schedule B indicated that as of May 18, 1995, the debtors had an interest in the following personal property:

                                                                       CURRENT MARKET VALUE OF
                TYPE OF PROPERTY                                          DEBTORS' INTEREST    
                Cash on hand                                                  $    60.00
                Checking accounts                                             $   427.94
                Various household goods and furnishings
                  this listing was itemized                                 $ 2,135.00
                Clothing                                                      $   200.00
                Jewelry
                  with separate appraisal list                              $ 2,165.00
                Mink stole, fox and full length mink, eight place
                  settings of silverware                                      $ 1,700.00
                Three firearms                                                $    50.00
                Office equipment (desk, three chairs and table)               $    50.00
                Air conditioning unit
                  (Fully secured)                                             $15,000.00
                IBM AT personal computer, typewriter, P 51 computer
                  with printer, non-running riding mower
                  washer and dryer, VCR, wicker sofa, three
                  chairs, coffee table and aluminum patio furniture           $   435.00
                                                                              __________
                                                        TOTAL                 $21,841.00
                

All of the items of personal property set forth on Schedule B were restated and claimed as exempt on Schedule C pursuant to TENN.CODE ANN. § 26-2-102,¹ the $4,000.00 personal property exemption for individuals, TENN.CODE ANN. § 26-2-103(a)(1),² the exemption for reasonable and necessary wearing apparel, or TENN.CODE ANN. § 26-2-111(4),³ the $750.00 exemption for tools of the trade. The debtors subsequently amended both Schedules B and C to add an additional checking account with a balance of $381.94, golf clubs valued at $125.00 and two dolls valued together at $35.00.⁴

Wachovia timely⁵ objected to the claimed exemptions, as amended, asserting that the personal property values as set forth in the schedules by the debtors were not accurate and that the exemptions should be denied. Wachovia further requested that in the event the court sustained its objections as to value, that the debtors be denied the opportunity to amend their schedules to conform with the court's ruling because the debtors "have not come into this bankruptcy with clean hands and in good faith." Specifically, Wachovia asserts that the debtors failed to include in their list of assets a 47-unit apartment building known as Hampton Apartments and two automobiles, a Mercedes Benz and Cadillac, which were transferred prepetition to the debtors' adult children by Mr. Sumerell's wholly-owned corporation, Bristol University. A hearing on the objections was held and thereafter, the parties filed proposed findings of fact and conclusions of law such that the matter is now ready to be resolved by the court. The following represents the court's findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(B).

II.

Fed.R.Bankr.P. 4003 sets forth the procedures with respect to exemptions and any objections thereto and provides that "in any hearing on objections to exemptions the objecting party has the burden of proving that the exemptions are not properly claimed." Fed.R.Bankr.P. 4003(c). Such burden is by a preponderance of the evidence. In re Shurley, 163 B.R. 286, 291 (Bankr.W.D.Tex.1993). Accordingly, Wachovia has the burden of proving that the debtors are not entitled to the exemptions they have claimed.

III.

The court will first address Wachovia's assertion that the debtors have substantially undervalued their assets. Specifically, Wachovia alleges that the household goods and furnishings listed in Schedules B and C as having a collective value of $2,135.00, actually have a fair market value of $27,405.00 based on the appraisal conducted by Wachovia's expert. The wide disparity between the two amounts is attributable in part to the fact that different valuation methods were applied by the parties. The values set forth in the schedules were based on the debtors' opinion of the furnishings' "liquidation value,"⁶ while the value asserted by Wachovia is said to be based on "fair market value," as that term is generally understood.

Testifying at trial as to value was Wachovia's expert, Kimball Sterling, a Johnson City appraiser and auctioneer, the debtors' expert, Rex Davis, and debtor Amy Sumerell. Mr. Sterling stated that he was in the business of evaluating and selling used furniture, antiques, and entire contents of homes and had done so for numerous years. He testified that he frequently testifies as an expert appraiser and has handled numerous estate auctions including that of the late Alex Haley, the noted Pulitzer Prize winner. Based on his examination of the debtors' household furnishings, Mr. Sterling concluded that the collective fair market value of the furnishings, within ten percent, was $27,405.00. Mr. Sterling testified that he based this amount on what he thought he could sell the items for at an auction with three weeks advertising, and was so confident that he could obtain this price at auction that he was willing to immediately purchase all of the items included in the appraisal for $19,700.00.

Rex Davis, the debtors' expert, testified that he was in the retail furniture business, having worked for retail furniture stores for the past 32 years, with primary responsibility as vice-president and general manager for the stores' purchases. In this capacity, Mr. Davis had also bought, sold and traded used furniture and within the past week, had been involved in attempts to sell bankruptcy estate furniture. Mr. Davis testified that he had inspected the debtors' household furnishings, that the majority of the furniture was in the medium price range and that the total value of the furniture from a retail or a manufacturers' suggested retail standpoint was $19,850.00. He opined that if the furniture were liquidated over a quick period of time, "you'd be lucky to get 20¢ on the dollar which would be approximately $3,900.00," and when asked if he thought this was a "fair market value" for used furniture, responded that it was "for used furniture and being able to dispose of it pretty quick. I really can't say that you could expect much more than that." On cross-examination when asked his opinion as to the "true value" of the furniture, Mr. Davis testified that he thought the furniture would be worth around 20¢ on the dollar on a quick sale.

Mrs. Sumerell testified that since the filing of the schedules, she had revised her estimation of the value of the household goods and furnishings from $2,135.00 to $3,460.00 based on the actual invoices for many of these items of furniture, the majority of which were purchased more than 15 years ago. Using these invoice prices, Mrs. Sumerell estimated the furnishings' present value and then reduced it by 80% to arrive at the goods' "wholesale" price, which totaled $3,460.00.

IV.

11 U.S.C. § 522 governs the exemptions available to a debtor in a bankruptcy case and provides that the debtor may elect certain specified federal exemptions set forth in subsection (d) of § 522 or the exemptions available to a debtor under applicable state law, unless the state has opted out of the federal exemptions. See 11 U.S.C. § 522(b)(1). Tennessee, along with numerous other states, has opted out of the federal bankruptcy exemption scheme, making the federal exemptions unavailable to a debtor who resides in Tennessee. See TENN.CODE ANN. § 26-2-112; In re Haga, 48 B.R. 492 (Bankr.E.D.Tenn.1985).

The debtors have claimed their household goods and furnishings exempt pursuant to the provisions of TENN.CODE ANN. § 26-2-102 which provides that "personal property to the aggregate value of four thousand dollars ($4,000.00) debtor's equity interest shall be exempt. . . ." Unlike § 522 of the Bankruptcy Code which defines value for purposes of that section as "fair market value as of the date of the filing of the petition,"⁷ TENN.CODE ANN. § 26-2-102 does not define value and no provision of the Tennessee Code supplies a definition of "value" for purposes of this section. It is noteworthy that all the Tennessee exemption statutes that speak in terms of limiting the applicable exemption to a fixed dollar amount use the single word "value"...