In re Young, 11–61195.

• Decision Date: 20 March 2012
• Docket Number: No. 11–61195.,11–61195.
• Citation: 468 B.R. 818
• Parties: In re Edward Joseph YOUNG, Jr. and Rosemary Kay Young, a/k/a Rosemary Kay Duszczyk, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

468 B.R. 818

In re Edward Joseph YOUNG, Jr. and Rosemary Kay Young, a/k/a Rosemary Kay Duszczyk, Debtors.

No. 11–61195.

United States Bankruptcy Court, E.D. Michigan, Southern Division,

March 20, 2012.

Melinda B. Oviatt, West Bloomfield, MI, for Debtors.

Opinion Sustaining Trustee's Objection To Exemption

PHILLIP J. SHEFFERLY, Bankruptcy Judge.

Introduction

The Debtors in this Chapter 7 case are husband and wife. The Debtor wife claimed an exemption in a 2008 Chevrolet Equinox. The Trustee objected to the exemption because the Equinox is titled to the Debtor husband, not to the Debtor wife. For the reasons explained in this opinion, the Court sustains the Trustee's objection and disallows the exemption.

Jurisdiction

This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O), over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a).

Facts

In September, 2008, Edward Young and Rosemary Duszczyk (“Debtors”) were living together with their six-month old daughter. At the time, Edward and Rosemary were not married. Edward had been out of work for about one and one-half years because of an injury he suffered. For transportation Edward and Rosemary were using a car they had borrowed from Rosemary's parents. Edward and Rosemary met expenses through the workers' compensation payments that Edward received plus income Rosemary received from working. But they really needed two cars of their own, because Edward was pursuing employment that was not nearby to home. Edward then received $65,000.00 as a workers' compensation settlement. This gave Edward and Rosemary the funds to purchase two vehicles. They began looking online and went to numerous dealerships to look at and test drive different vehicles.

On September 11, 2008, Edward and Rosemary went to Moran Chevrolet in Clinton Township, Michigan. Because it was late in the evening and near closing time at the dealership, Edward recalls that they were “kind of rushed.” Also, because they had their daughter with them at the dealership, they were somewhat distracted. They had picked out two vehicles they previously test drove, a 2008 Chevrolet Equinox, and a 2005 Pontiac Grand Prix. They paid cash for the vehicles. Their thinking at the time was that Edward would drive the Grand Prix because it got better gas mileage, and Rosemary would drive the Equinox as it was newer and better suited for children. The two vehicles together cost $43,000.00. Edward and Rosemary met with one salesperson from the dealership who handled the paperwork for the purchase of both of the cars.

Neither Edward nor Rosemary remember any conversation that they had with the salesperson about who they wanted to put on the titles to these two cars. They remember only that they were buying the two cars for their family and that they considered the cars to be “ours.” Edward testified that there was “no set thing” about who would be on the title for each of the cars. They each remember that they had an “understanding” that Edward would drive the Grand Prix and Rosemary would drive the Equinox, but don't remember telling either the salesperson or each other what should be on the certificates of title. Edward and Rosemary don't remember the topic even coming up in their conversations with the salesperson or each other. When the paperwork was completed, Edward and Rosemary drove the vehicles home.

Before the purchase, Edward called their insurance company and told the agent that they were purchasing the two vehicles. Edward discussed with the agent how to have the insurance issued in the manner that was the cheapest. He discussed both ownership and who would be the primary driver of the vehicles. As it turned out, the rates were the same regardless of who was going to be the owner of the vehicles because both he and Rosemary resided in the same household. The insurance lists Rosemary as the driver of the Equinox.

After the purchase, Edward and Rosemary received the certificates of title in the mail, and placed them with their important papers. They did not look at the certificates of title, or even open the envelopes, until three years later, when they prepared to file Chapter 7. The certificate of title for the Grand Prix, the car that was going to be driven by Edward, describes the owner(s) as: “Rosemary Kay Duszczyk & Edward Joseph Young, Jr.” Underneath their names, the certificate of title states: “FULL RIGHTS TO SURVIVOR.” The certificate of title for the Equinox, the car to be driven by Rosemary, describes the owner(s) as: “Edward Joseph Young, Jr.” Neither Edward nor Rosemary have any explanation as to why the certificate of title for the Grand Prix shows Edward and Rosemary as joint owners with rights of survivor, but the certificate of title for the Equinox just shows Edward as the owner.

In March, 2010, Edward and Rosemary were married. On August 5, 2011, Edward and Rosemary filed their Chapter 7 petition. On schedule B, they list the Equinox as “titled to husband but driven by wife and treated as her vehicle.” They also list the Grand Prix as “driven by husband,” but do not say anything on schedule B about the title to the Grand Prix. On his schedule C, Edward claimed an exemption in both the Equinox and the Grand Prix. On her schedule C, Rosemary claimed an exemption in both vehicles as well.

The Trustee objects to Rosemary's claim of exemption in the Equinox, which is specified on her schedule C as being taken pursuant to § 522(d)(5) of the Bankruptcy Code, and described as “titled to husband but driven by wife and treated as her vehicle.” The Trustee's objection is based on the fact that the certificate of title for the Equinox shows the owner of the Equinox to be Edward, and does not show Rosemary as having any interest in the Equinox. Rosemary replies by asserting that she does own an interest in the Equinox notwithstanding the fact that she is not on the certificate of title and that she is entitled to exempt her interest in this bankruptcy case. After hearing legal arguments by the Trustee and the Debtors, the Court scheduled an evidentiary hearing. Edward and Rosemary were the only two witnesses. At the conclusion of the evidentiary hearing, the Court took the Trustee's objection under advisement.

Discussion

Fed. R. Bankr.P. 4003(b) provides that a party in interest may file an objection to the list of property that a debtor claims as exempt and sets a deadline for such objections. Fed. R. Bankr.P. 4003(c) provides that a party objecting to a debtor's claim of exemption has the burden of proving that the exemption is not properly claimed. The Trustee's objection in this case was timely filed.

As noted, the Trustee objects to Rosemary's claim of exemption in the Equinox because she is not on the certificate of title. Therefore, the Trustee argues, Rosemary does not have a property interest in the Equinox that can be exempted under § 522(d)(5) of the Bankruptcy Code. Rosemary responds by advancing two different arguments. The first argument is that the certificate of title is not dispositive under applicable Michigan law, and that one can be an owner of a vehicle under applicable Michigan law irrespective of the certificate of title. Rosemary argues that she is an owner of the Equinox under Michigan law. Rosemary's second argument is that even if she is not an owner of the Equinox, she is nonetheless the beneficiary of a trust pursuant to which Edward holds the Equinox in trust for her. Rosemary asks that the Trustee's objection be overruled.

The starting point to consider the Trustee's objection is § 541 of the Bankruptcy Code, which defines those interests that fall within the definition of property of the estate. Except for certain exceptions not relevant here, § 541(a)(1) provides that property of the bankruptcy estate is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” ¹ Section 522 of the Bankruptcy Code permits a debtor to exempt from property of the estate certain property that ensures that the debtor has the basic necessities to enable him or her to have the fresh start is one of the goals of a bankruptcy case. See In re Olson, 424 B.R. 770, 773–74 (Bankr.E.D.Mich.2010) (citation omitted) (“The purpose of personal exemptions in bankruptcy is to ensure that the individual does not emerge from bankruptcy destitute, and to ensure that the individual has the basic necessities to enable him to have the ‘fresh start’ that is the goal of bankruptcy.”). “Exemption statutes should be construed liberally in favor of the debtor.” Id. (citation omitted). To determine whether a debtor has an interest in property, whether such property is property of the estate under § 541, and whether such interest may then be exempted under § 522, bankruptcy courts must look to state law as property interests are created and defined by state law. “Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).

Rosemary's first argument starts with the definition of “owner” under the Michigan Vehicle Code. Section 257.37 of Mich. Comp. Laws Ann. defines an “Owner” as any of the following:

(a) Any person, firm, association, or corporation renting a motor vehicle or having the exclusive use thereof, under a lease or otherwise, for a period that is greater than 30 days.

(b) Except as otherwise provided in section 401a, a person who holds the legal title of a vehicle.

(c) A person who has the immediate right of possession of a vehicle under an installment sale contract.

Rosemary points to this statute as demonstrating that ownership of a vehicle does not necessarily flow only from the certificate of title and that there may be other facts...