In re Tankersley

• Decision Date: 28 August 2017
• Docket Number: CASE NO. 4:15–bk–16102
• Citation: 575 B.R. 848
• Parties: IN RE: Bobby TANKERSLEY and Mary E. Tankersley, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

575 B.R. 848

IN RE: Bobby TANKERSLEY and Mary E. Tankersley, Debtors.

CASE NO. 4:15–bk–16102

United States Bankruptcy Court, E.D. Arkansas, Little Rock Division.

Signed August 28, 2017

575 B.R. 850

Kevin P. Keech, Keech Law Firm, PA, Little Rock, AR, for Debtors.

M. Randy Rice, Rice & Associates, P.A., Trustee.

575 B.R. 851

MEMORANDUM OPINION

Phyllis M. Jones, United States Bankruptcy Judge

Before the Court is the Objection to Exemptions Claimed by Debtors [Doc. No. 89] ("Objection ") filed on July 7, 2016, by M. Randy Rice, the duly appointed Chapter 7 Trustee ("Trustee "). The Trustee raises three objections to the exemptions claimed by the Debtors, Bobby "Bob" Tankersley and Mary Tankersley (collectively, the "Debtors ").

First, the Trustee alleges the property exempted is not jointly owned; therefore, the debtor without an ownership interest in the property is not allowed to exempt the property. Second, the Trustee argues that the real property claimed as exempt under 11 U.S.C. § 522(d)(1) does not qualify for the federal exemption because neither the Debtors nor any dependent of the Debtors used the property as a residence on the petition date. Finally, the Trustee contends that the Debtors have undervalued certain real property located in Faulkner County, Arkansas, in an attempt to fully exempt property that, if properly valued, would not be entitled to a full exemption under the Bankruptcy Code.

The Debtors argue that they have inchoate dower and curtesy rights to each other's property and are allowed an exemption based on these rights. The Debtors further contend that the property claimed as exempt under 11 U.S.C. § 522(d)(1) was being rented by the Debtors to a tenant who resided there on the petition date and the Debtors may exempt the property as a second home or even as residential rental property. As to the valuation issue, the Debtors dispute that the real property is undervalued.

The Court conducted a hearing on the Trustee's Objection. The Debtors appeared in person and by and through their attorney, Kevin P. Keech. The Trustee appeared in person and on his own behalf. At the close of the hearing, the Court requested the parties to submit post-trial briefs and thereafter took the matter under advisement. For the following reasons, the Trustee's Objection is sustained.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). The following constitutes the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052, made applicable to this contested matter by Federal Rule of Bankruptcy Procedure 9014.

FACTS

The Debtors filed a voluntary joint petition for relief under the provisions of Chapter 7 of the United States Bankruptcy Code on December 3, 2015. The parties stipulated that the claims register reflects total claims of $2,056,701.53. At the time of the hearing the only funds received in the case were $62,364.09 from the sale of fifty-two acres of real property belonging to the Debtors.

At the time of filing bankruptcy, Bob Tankersley was in poor health, recovering from cancer of the eye, three heart attacks, and gall bladder surgery. During the fourteen years prior to filing bankruptcy, Bob Tankersley owned Co–Bar Contracting, Inc. ("Co–Bar"), a construction business that cleared land and installed water and sewer lines in subdivisions. He became involved in Co–Bar at the request of his son, Charles Tankersley, who needed help reestablishing himself in business after his bankruptcy. In testimony, Bob Tankersley was described as illiterate, and, although he was the titular head of Co–

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Bar, his role at the company was to run errands, while Charles Tankersley and Charles' then-wife, Sharon Tankersley, handled the day-to-day operations and made the business decisions.

Bob and Mary Tankersley married in 1986. At the time they married, Mary Tankersley owned a house in Sherwood, Arkansas, (the "Sherwood Property" ). After marriage, the Debtors lived in the Sherwood Property together as husband and wife, from 1986 until 2008 when they purchased property at 302 Walkers Corner Road (the "Walkers Corner Property" ) in Scott, Arkansas, from Co–Bar. Their property consisted of a house and an acre of land that was part of a larger tract of land owned by Co–Bar.

The Debtors were living in the Walkers Corner Property at the time the bankruptcy petition was filed, and it is reflected as the Debtors' address on the bankruptcy petition. (Debtors' Ex. 1, at 2).

The purchase agreement for the Walkers Corner Property between Bob and Mary Tankersley and Co–Bar dated August 31, 2008, reflected a purchase price of $120,000.00. (Debtors' Ex. 18). The Debtors paid Co–Bar $95,000.00 from the sale proceeds of the Sherwood Property as a down payment for the Walkers Corner Property. Mary Tankersey testified that they were buying the Walkers Corner Property to live in "for the rest of their lives." (Tr. at 59).

The parties agreed that the $25,000.00 balance remaining on the purchase price could be satisfied by making needed improvements to the Walkers Corner Property. Mary Tankersley testified that they spent at least $100,000.00 on improvements. Unfortunately, the Debtors never received the deed to the property because Co–Bar had pledged it to the sellers at the time it purchased the property, and, upon Co–Bar's default, the sellers foreclosed on the property. In Mary Tankersley's words, they did not receive the deed because her "stepson didn't pay his part of the property and ... we couldn't afford to make his payments and ours." (Tr. at 58).

Mary Tankersley testified that at the time of the hearing she and her husband lived in Vilonia, Arkansas, where they moved in June 2016, approximately six months after the bankruptcy was filed. The Debtors are renting the property with an option to purchase. Currently they pay $600.00 per month and within three years could choose to purchase the property for $100,000.00. However, Mary Tankersley further testified that the option will not be available to them because they will not be able to obtain a loan for that amount.

In their schedules, the Debtors listed, among other property, five tracts of real property in Faulkner County, Arkansas. These five tracts, each claimed as exempt by the Debtors and the subjects of the Trustee's objection, will be collectively referred to as the "Faulkner County Properties." Two other assets scheduled by the Debtors are relevant to the Trustee's objection to exemptions. The first is 177 shares of common stock in Johnson & Johnson, (the "J & J Stock "), and the second is an interest in a life insurance policy with New York Life Insurance Company ("Life Insurance Policy "). (Trustee's Ex. 1; Debtors' Exs. 1, 10). Each of these assets will be discussed separately below.

Faulkner County Properties

The schedules reflect that only Mary Tankersley holds an interest in the five tracts of land that comprise the Faulkner County Properties. (Debtors' Ex. 1, Sch. A/B at 11–13). At trial, Mary Tankersley testified that she inherited the Faulkner County Properties from her mother around 1981, prior to her marriage to Bob

575 B.R. 853

Tankersley in 1986. (Tr. at 22, 28). Consistent with Mary Tankersley's testimony, the Trustee introduced a Warranty Deed dated November 11, 1981, from Elizabeth Cartwright signed by her attorney-in fact, Jerry W. Cartwright, to Mary Cartwright (Mary Tankersley's maiden name) and a Warranty Deed dated December 31, 1984, from Jerry W. Cartwright, as Executor of the Last Will and Testament of Elizabeth Cartwright, to Mary Cartwright. (Trustee's Ex. 2). The Trustee does not dispute that Mary Tankersley inherited the Faulkner County Properties from her mother. Although Mary Tankersley testified that it was her intention to put Bob Tankersley's name on the deeds to the properties, she could not recall any specific steps she took to do so.

The Trustee also introduced two personal financial statements of the Debtors dated December 31, 2011, and December 31, 2012. (Trustee's Ex. 5). Each financial statement listed the Faulkner County Properties and indicated that the combined value was $190,000.00. Mary Tankersley testified that the financial statements were necessary for Co–Bar to obtain bonds for projects. She further testified that she had seen the financial statements, but explained that Charles Tankersley's former spouse, Sharon Tankersley, prepared them and had arrived at the reflected value. Mary Tankersley stated that the Faulkner County Properties were not worth $190,000.00 in 2011 or 2012, but also admitted to reviewing the financial statements after they were prepared, signing them, and knowing that they were being used to obtain bonds for Co–Bar for projects.¹

The financial statements contain a note with the following language, "This information contained on this statement was obtained from Mr. and Mrs. Bobby...