In re Whalen-Griffin
| Decision Date | 14 March 1997 |
| Docket Number | Bankruptcy No. 96-11370-JNF. |
| Citation | 206 BR 277 |
| Parties | In re Mary A. WHALEN-GRIFFIN and Robert Joseph Griffin, Debtors. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Richard Askenase, Boston, MA, Chapter 13 Trustee.
Lawrence Rudderham, Brookline, MA, for Debtors.
The matter before the Court is the "Trustee's Objection to Claim of Exemptions" (the "Objection"), which exemptions the Debtors claimed on Schedule C of their Schedules filed in connection with their Chapter 13 bankruptcy petition. In his Objection, the Chapter 13 Trustee stated that both Debtors claimed a homestead exemption in real property pursuant to Mass.Gen.Laws Ann. ch. 188, § 1 (West 1991 & Supp.1996) (hereinafter "M.G.L. c. 188, § 1") and that numerous claims of creditors predate the recordation of the Declaration of Homestead by the Debtors. Accordingly, the Trustee, citing In re Van Rye, 179 B.R. 375 (Bankr.D.Mass.1995), aff'd, 96 F.3d 1430 (1st Cir.1995) (), stated that the exemption is ineffective against these claims. The Trustee added that any claims incurred after the recordation of the Declaration of Homestead should not receive distributions through the Debtors' Chapter 13 plan, while those incurred prior to the recordation of the homestead should be paid a dividend. The Trustee further requested the Court's guidance to resolve the issues raised by his Objection in light of the split of authority within the District of Massachusetts.
The Debtors filed a response to the Trustee's Objection, indicating that only Robert Griffin filed the Declaration of Homestead. They also asked the Court's guidance to resolve the issues raised by the Trustee's Objection in light of the significance of the issues to the practice of bankruptcy law in this jurisdiction.
The Court conducted a hearing on the Trustee's Objection on June 17, 1996. At the conclusion of the hearing, the Court, with the consent of the parties, directed them to file an Agreed Statement of Facts by July 17, 1996. After requesting and being granted a number of continuances, the parties filed a "Stipulated Set of Facts Regarding Creditors sic Claims" (the "Stipulated Facts") on December 16, 1996. Three days later, the Court ordered the parties to file briefs with respect to their respective positions within 30 days. Upon consideration of the Stipulated Facts and the briefs submitted by the parties, the Court now makes the following findings of fact and conclusions of law in accordance with Fed.R.Bankr.P. 7052.
The Debtors filed a voluntary petition under Chapter 13 on February 27, 1996. On Schedule A-Real Property they listed a "homestead at 45 St. Margaret, Weymouth, MA sic" owned solely by Robert Griffin. They indicated that the market value of Robert Griffin's interest was $100,000.00 and that there were no secured claims encumbering the property. On Schedule C-Property Claimed Exempt, the Debtors elected the state exemptions, and, in particular, M.G.L. c. 188, § 1 with respect to the real estate located in Weymouth. The Debtors listed no secured creditors on Schedule D-Creditors Holding Secured Claims. On Schedule E-Creditors Holding Unsecured Priority Claims, the Debtors listed nominal joint debts to the Internal Revenue Service and to the Massachusetts Department of Revenue each in the amount of $500.00. On Schedule F-Creditors Holding Unsecured Nonpriority Claims, the Debtors listed $128,978.10 in debt owed to 55 separate creditors. The Debtors identified 53 of the 55 obligations as credit card debts. On Schedules I and J, the Debtors listed current monthly income from social security and Veterans' Administration disability benefits of $2,895.00 and monthly expenses of $2,427.33. With monthly excess income of $467.67, the Debtors proposed a plan with a 10% dividend to unsecured creditors. The Debtors did not include the Weymouth property in the Liquidation Analysis section of their Chapter 13 plan.
In the Stipulated Facts, the Debtors and the Trustee agreed that the treatment of secured and priority claims is not an issue. Moreover, they agreed that, as of the bar date for filing proofs of claim, creditors holding claims in the amount of $79,005.35 had filed proofs of claim. Additionally, the parties agreed that Robert Griffin solely owns the property located at 45 St. Margaret Street, Weymouth and that the Declaration of Homestead was recorded on July 28, 1994.1 The parties stipulated that the value of the Weymouth property is $100,000.00.
According to the Stipulated Facts, the Debtors testified at the § 341 meeting of creditors that "much of the outstanding debt predates the recording of the homestead exemption." In their submissions to the Court, the Debtors break down the claims for which proofs of claim have been filed into six categories: 1) claims that arose prior to the recording of the Declaration of Homestead for which the account balances have increased until the date of the filing of the petition; 2) claims that arose prior to the recording of the Declaration of Homestead for which the account balances were reduced to a lower amount after July 28, 1994 but then increased to the present balances; 3) claims that arose prior to the recording of the Declaration of Homestead for which the account balances were reduced to zero after July 28, 1994 but then increased to the present balances; 4) claims that arose prior to July 28, 1994 with no increase in the account balances after that date; 5) claims that arose after July 28, 1994; 6) claims for which detailed information necessary to categorize the claims is unavailable. The Debtors' summaries of the proofs of claim are attached to this Memorandum as Exhibits A and B. Accordingly, based upon the Stipulated Facts, the Court finds that the Debtors had debts of at least $21,288 as of the date of the recordation of the Declaration of Homestead.
In a brief statement incorporated in the Stipulated Facts, the Trustee argued that if there were any outstanding balances on claims at the time the Declaration of Homestead was recorded and if the claims were never reduced to a zero balance, then the Debtors are not entitled to any exemption for those claims. In other words, the Trustee argued that claims in categories 1 and 2 must be paid in full in this case. The Trustee also argued that the Debtors must pay the claims that fall in categories 4 and 6 in full, but he took no position with respect to the claims in category 3.
In his Memorandum, the Trustee modified the position he articulated in the Stipulated Facts. Citing In re Miller, 113 B.R. 98 (Bankr.D.Mass.1990), and Gruet v. FDIC, 879 F.Supp. 153 (D.Mass.1995), he indicated that categorization of debts is unnecessary as the determining factor is when the claim became a "debt contracted prior to the acquisition of said estate of homestead," see M.G.L. c. 188, § 1 (), not when the Debtors used their credit cards. Thus, the Trustee argued that, if credit cards were issued prior to the recordation of the Declaration of Homestead, any debts contracted prior to the acquisition of the homestead are not subject to the homestead, regardless of whether new charges or payments were made. The Trustee cited In re Cox, 182 B.R. 626, 636 (Bankr.D.Mass.1995) ( ), and In re Feld, 203 B.R. 360 (Bankr.E.D.Pa.1996) (same), in support of this position.
The Trustee further argued that prehomestead debts must be separately classified in the Debtors' Chapter 13 plan and paid as if there were no exemption. He stated the following:
. . . under state law . . . a creditor whose debt was contracted pre-homestead could attach the homestead and execute against it. Where the debtor has filed a chapter 13 petition, the plan must provide that creditors would receive as much under the plan as they would in chapter 7. Thus, the trustee believes that pre-homestead debts in chapter 7 would be paid as if there were no applicable homestead exemption, and therefore the chapter 13 plan must provide for payment of at least the same amount in order to meet the "best interests" test of the Code.2
Accordingly, the Trustee, citing White v. Rice, 87 Mass. 73 (1862), and Clark v. Potter, 79 Mass. 21 (1859), argued that the Debtors may be required to pay as much as 100% of their pre-homestead debt if the equity in the homestead exceeds the amount of pre-homestead debts.
The Debtors, in their brief, urged the Court to follow the decision of Judge Queenan in In re Boucher, 203 B.R. 10 (Bankr. D.Mass.1996). They stated the following:
The decision is a good one, based on precedent from other jurisdictions and supported by the Owen v. Owen, 500 U.S. 305, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991) decision from the Supreme Court. In light of the Owen decision, it is very difficult to ignore the mandate of 11 U.S.C. § 522(c) when deciding on whether to apply the exception to the homestead.
Consequently, the Debtors took the position that the claimed exemption protects the real property from seizure and that they, therefore, are entitled to pay creditors a 10% dividend. In other words, they maintained that the exception to the exemption for pre-homestead debt under state law is inapplicable and invalid in bankruptcy cases. They also emphasized the "painful undertaking necessary to obtain detailed information on revolving charge accounts," the "tremendous cost," and the "impossible task of knowing what debt is incurred prior to recording...
To continue reading
Request your trial