In re Williams

• Decision Date: 06 August 2014
• Docket Number: No. 14–10559–WCH.,14–10559–WCH.
• Citation: 515 B.R. 395
• Court: U.S. Bankruptcy Court — District of Massachusetts
• Parties: In re Marybeth Bauer WILLIAMS, Debtor.

515 B.R. 395

In re Marybeth Bauer WILLIAMS, Debtor.

No. 14–10559–WCH.

United States Bankruptcy Court,

D. Massachusetts,

Eastern Division.

Signed Aug. 6, 2014.

Alex F. Mattera, Demeo, LLP, Boston, MA, for the Trustee.

Peter M. Daigle, Law Office of Peter M. Daigle, P.C., Centerville, MA, for the Debtor.

MEMORANDUM OF DECISION

WILLIAM C. HILLMAN, Bankruptcy Judge.

I. INTRODUCTION

The matter before the Court is the “Objection of Donald R. Lassman, Chapter 7 Trustee, to Debtor's Claim of Exemption” (the “Objection”) filed by Donald R. Lassman (the “Trustee”), the Chapter 7 trustee, and the “Debtor's Opposition and Response to Objection of Donald R. Lassman, Chapter 7 Trustee, to Debtor's Claim of Exemption” filed by Marybeth Bauer Williams (the “Debtor”). Through the Objection, the Trustee asserts that the sale proceeds of the Debtor's former residence are no longer entitled to protection under the Massachusetts Homestead Statute ¹ because they were not reinvested in a new home within one year of the sale. For the reasons set forth below, I will continue the Objection generally.

II. BACKGROUND

The facts are not in dispute. The Debtor previously owned certain real property located at 49 Shubael Gorham Road in Centerville, Massachusetts (the “Property”) with her spouse, Mark J. Williams (“Mark”). The Debtor and Mark separated on January 5, 2013, and a divorce proceeding is now pending before the Barnstable Probate and Family Court (the “Probate Court”). Although a final settlement agreement has not been executed and the Probate Court has not entered judgment, the Debtor and Mark agreed to sell the Property pursuant to a tentative property settlement. On March 29, 2013, they sold the Property, realizing net proceeds of approximately $63,280.98. The Debtor and Mark equally divided these proceeds, and the Debtor deposited approximately $31,640.49 in a segregated checking account at Cape Cod Five Cents Savings Bank (“Cape Cod 5”).

On February 13, 2014, the Debtor filed a voluntary Chapter 7 petition. On “Schedule B—Personal Property” (“Schedule B”), she listed a checking account at Cape Cod 5 with a balance of $29,000.00 and identified the funds as being the “proceeds from the sale of former marital residence” (the “Proceeds Share”).² On “Schedule C—Property Claimed as Exempt” (“Schedule C”), the Debtor claimed an exemption pursuant to Mass. Gen. Laws ch. 188, § 4 in the full amount of the Proceeds Share (the “Exemption”).

The Trustee was appointed on February 13, 2014. The Debtor appeared at the meeting of creditors held pursuant to 11 U.S.C. § 341 (the “Meeting of Creditors”) on March 18, 2014. On April 18, 2014, the Trustee filed the Objection, contending that by virtue of the Debtor's failure to reinvest the Proceeds Share into a new home within one year of the sale, the Proceeds Share was no longer entitled to protection under the Massachusetts Homestead Statute. ³ The Debtor filed the Opposition on May 29, 2014. I heard the matter on June 6, 2014, and after oral arguments from both parties, I took the matter under advisement.

III. POSITIONS OF THE PARTIESA. The Trustee

Although the Debtor claimed the Exemption pursuant to Mass. Gen. Laws ch. 188, § 4, the automatic homestead exemption provision, the Trustee contends that section only applies to “actual homesteads.” ⁴ Instead, he posits that the Debtor actually relies on Mass. Gen. Laws ch. 188, § 11, which applies to the proceeds from the sale of a home. Nevertheless, the Trustee asserts that Mass. Gen. Laws ch. 188, § 11 no longer forms a valid basis for the Exemption because it only protects the sale proceeds of the homestead for up to one year after the sale if the owner does not acquire a new homestead before then. Because the Property was sold on March 29, 2013, and the Debtor did not reinvest the Proceeds Share in a new homestead within one year, he argues that the homestead protection afforded to the Proceeds Share expired by operation of Massachusetts law.

While the Trustee concedes that, generally speaking, exemptions are fixed at the time of the bankruptcy filing, he rejects the notion that an exemption cannot be changed by post-petition events. Because this is an issue of first impression in this district, he relies on several decisions from other jurisdictions holding that any “snapshot rule” with respect to exemptions must be viewed in the context of the entire state law applicable on the filing date.⁵ Thus, the Trustee urges that any exemption is claimed subject to all the limitations contained within the applicable state law.

To the extent that the Debtor relies on In re Cunningham⁶ to support the Exemption, the Trustee asserts that the case is wholly distinguishable from the facts at bar. He explains that In re Cunningham stands for the proposition that the proceeds from the post-petition sale of the homestead property remain exempt under the prior version of the Massachusetts Homestead Statute.⁷ Similarly, the Trustee argues that In re Weinstein⁸ is distinguishable from the present case because rather than dealing with an exception to the homestead, the right granted by Mass. Gen. Laws ch. 188, § 11 is simply limited in nature.

B. The Debtor

The Debtor asserts that the Objection is without merit because exemptions are determined on the petition date, and, pursuant to 11 U.S.C. § 522(c), are not liable during or after any case for a prepetition debt.⁹ She relies on In re Cunningham¹⁰ and In re Gasztold¹¹ for the proposition that once property is exempt from the estate, a subsequent change in the property's form will not return it to the estate even if the new form would not have been entitled to an exemption in the first place. Moreover, the Debtor argues that In re Weinstein stands for the proposition that the Bankruptcy Code preempts a state's exceptions to its homestead statute. ¹² Alternatively, she submits that Mass. Gen. Laws ch. 188, § 6 protects the Exemption during the pendency of the divorce proceedings in the Probate Court.

Apart from her other arguments, the Debtor also complains that she has been unfairly prejudiced by the timing of the Objection. She explains that had the Trustee filed the Objection shortly after the petition date, she would have been able to reinvest the Proceeds Share into a new homestead. The Debtor contends she detrimentally relied on the lack of an earlier objection, believing that the Proceeds Share would be forever exempt.¹³ In the absence of any other basis for relief, the Debtor asks that I grant her sixty days to reinvest the Share Proceeds pursuant to my powers under 11 U.S.C. § 105(a).

IV. DISCUSSION

Upon the filing of a bankruptcy petition, a estate is created “consist[ing] of all the interests in property, legal and equitable, possessed by the debtor at the time of filing, as well as those interests recovered or recoverable through transfer and lien avoidance provisions.” ¹⁴ A debtor may claim that certain interests in property are exempt from the estate, thus withdrawing that “interest ... from the estate (and hence from the creditors) for the benefit of the debtor.” ¹⁵ Pursuant to 11 U.S.C. § 522(b)(1), “a Massachusetts debtor may exempt property from the bankruptcy estate under one of two alternative exemptions,” ¹⁶ electing “either the federal bankruptcy exemptions set forth in [ 11 U.S.C.] § 522(d) or the exemptions available under state federal non-bankruptcy or local law only.” ¹⁷ “Property that is properly exempted under § 522 is (with some exceptions) immunized against liability for prebankruptcy debts.” ¹⁸

Notably, 11 U.S.C. § 522(1) provides that exemptions listed on Schedule C are presumptively valid in the absence of an objection.¹⁹ Therefore, Fed. R. Bankr.P. 4003(c) places the burden to prove that an exemption is not properly claimed on the objecting party. ²⁰ To the extent that resolution of the present dispute requires interpreting the Massachusetts Homestead Statute, I must remain mindful that the “Massachusetts homestead exemption is to be liberally construed in favor of the declarant” ²¹ and try to predict how the Massachusetts Supreme Judicial Court would rule.²²

In 2010, the Massachusetts Legislature enacted a comprehensive revision to the Massachusetts Homestead Statute. On its face, the purpose of this sweeping amendment was to extend homestead protection to circumstances where it had not applied under the prior law. This includes, inter alia, introducing the concept of an “automatic homestead exemption” in the amount of $125,000 which applies in the absence of a valid declared homestead exemption, expanding homestead rights to include those who “own” real estate through a beneficial interest in a trust, and offering limited protection to the proceeds resulting from a sale or casualty to the homestead.²³ As I recently noted, the consequenceof these changes is that “parsing the Massachusetts Homestead Statute now involves a complicated web of defined terms and cross-references.” ²⁴

On Schedule C, the Debtor claimed the Exemption pursuant to Mass. Gen. Laws ch. 188, § 4, which provides in relevant part:

In the absence of a valid declaration of homestead recorded under this chapter, an estate of homestead to the extent of the automatic homestead exemption shall exist in a home for the benefit of the owner and the owner's family members who occupy or intend to occupy the home as a principal residence.²⁵

As previously stated, an “[a]utomatic homestead exemption” is, subject to conditions not germane to this discussion, an exemption in the amount of $125,000.²⁶ A “home,” is generally defined as one of various residential dwelling structures, while a “principal residence,” is “the home where an owner ... resides or intends to reside as the primary dwelling....” ²⁷ Finally, an “owner” is defined as “a natural person who is a sole owner, joint tenant, tenant by the entirety, tenant in common, life estate holder or holder of a beneficial interest in a trust.” ²⁸

The Trustee...