Williamson, Matter of
| Decision Date | 02 December 1986 |
| Docket Number | No. 85-4940,85-4940 |
| Parties | 15 Collier Bankr.Cas.2d 1225, Bankr. L. Rep. P 71,523 In the Matter of Clyde WILLIAMSON, d/b/a Triangle 44 Farms, Debtor. Glen A. STINSON, et al., Plaintiffs-Appellees, v. Clyde E. WILLIAMSON, d/b/a Triangle 44 Farms, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
John R. Kingsafer, Natchez, Miss., for defendant-appellant.
Stratton Bull, Jr., John T. Green, Natchez, Miss., for plaintiffs-appellees.
Appeal from the United States District Court for the Southern District of Mississippi.
Before JOLLY, HILL and JONES, Circuit Judges.
This case presents us with the question whether a bankrupt should be permitted, after claiming federal exemptions in his original bankruptcy petition, to amend his classifications so as to claim a state homestead exemption. We hold that such amendment ought to have been allowed, and we therefore reverse the district court. We further hold that the homestead exemption should be determined as of the date the debtor initially filed his chapter 11 reorganization petition in bankruptcy, not as of the date that he converted it into a chapter 7 liquidation petition. Because, however, the district court did not decide whether Williamson was in fact entitled to a homestead exemption under state law, or the extent to which his exemption (in the event that he was entitled to it) might be impaired by the relevant judgment liens, we remand this case to the district court.
In April 1978, Clyde Williamson moved a mobile home onto Courtland Plantation, owned by Barnett Serio, in Adams County, Mississippi. In October 1978, Williamson entered into a contract of sale with Serio for the purchase of the Courtland Plantation. This was an executory contract which provided for annual cash payments to Serio and annual installment payments to the Federal Land Bank on an existing deed of trust which encumbered the property. Before filing his petition in bankruptcy, Williamson paid more than $250,000 under the terms of the contract of sale. Williamson was in continuous possession of Courtland Plantation from October 1978 until its sale in April 1984, and has lived there with his family at all times pertinent to this litigation.
In March 1982, Cloverleaf Cooperative obtained a judgment against Williamson in state court in the amount of $49,922.10. The following month, Glen Ellis Stinson, Mary Kathryn Ellis Stinson, and Glen A. Stinson filed a complaint against Williamson in state court. The Stinsons and Williamson entered into a letter agreement, and in October 1982, a final decree was entered in favor of the Stinsons for $33,500.
Williamson filed a voluntary chapter 11 bankruptcy petition in this matter on March 1, 1983. He claimed the federal exemptions under 11 U.S.C. Sec. 522(b) and did not claim any state law homestead exemption. On March 29, 1984, the bankruptcy court entered an order authorizing Williamson to assume the executory contract of sale for the 854 acres. Pursuant to this order, Serio conveyed 854 acres of the Courtland Plantation to Williamson under a warranty deed executed on April 13, 1984. Williamson conveyed 852 acres to a third party, H.P. Brooks, the same day. At the time of the bankruptcy court's decision, the Williamsons still lived on Courtland Plantation in the same mobile home pursuant to a reservation for themselves in the deed to Brooks of a two-acre tract upon which their mobile home was located. The sale to Brooks netted $61,955.99 for the benefit of the bankruptcy estate.
On June 1, 1984, Williamson filed an amendment to the classification of property, claiming a homestead exemption under state law in the amount of $30,000. This homestead exemption is permitted by Miss.Code Ann. Sec. 85-3-21 (Supp.1985). On the same day, Williamson filed two motions to avoid the liens impairing his exemptions, as to the Cloverleaf and Stinsons' judgment liens respectively, on the grounds that the judgment liens impaired his $30,000 exemption. Later that month, the Stinsons filed an objection to Williamson's motion. Cloverleaf has not filed any objection or answer. A hearing on both motions was held by the bankruptcy court in August 1984. Cloverleaf made no appearance.
The bankruptcy court granted Williamson leave to amend and granted him the $30,000 exemption, 49 B.R. 675. The bankruptcy court implicitly avoided the judgment liens by holding that the creditors' claims to the proceeds of the sale are burdened with and subject to Williamson's homestead exemption claim. Upon appeal by the Stinsons of the bankruptcy court order, the district court, relying on In re Eldridge, 15 B.R. 594 (Bankr.S.D.N.Y.1981), held that the bankruptcy court's allowing Williamson to amend his exemption election from federal to state after the sale of the property was clearly erroneous. Williamson appeals the district court's reversal of the bankruptcy court.
Williamson on appeal first argues that the district court erred by denying him the right to amend his exemption schedules. He contends that allowing him to amend will not prejudice the creditors, and notes that his creditors did not assert prejudice in their exceptions to the bankruptcy court's ruling. He next contends that he is entitled under Mississippi law to a homestead exemption for the proceeds from the sale of homestead property. Williamson argues that a debtor's exemption eligibility is to be determined as of the time of the filing of the bankruptcy petition, and that events occurring after that date, i.e., the sale of his homestead, are irrelevant to the determination of his eligibility for the exemption. Finally, Williamson contends that he is entitled to avoid his creditors' judgment liens to the extent that they encumber his homestead exemption. For this argument he primarily relies on section 522(f)(1) of the Bankruptcy Code, 11 U.S.C. Sec. 522(f)(1). Williamson requests that the court adopt the method set out in In re Duncan, 43 B.R. 833 (Bankr.D.Alaska 1984), for determining when and to what extent a judicial lien impairs an exemption under section 522(f)(1).
The appellee-creditors respond by arguing that they will be prejudiced if Williamson is permitted to amend and successfully claim a state homestead exemption. According to the creditors, the district court was correct to deny Williamson leave to amend his exemption schedules because his amendment was untimely and because he waived his homestead rights by failing to claim them prior to the sale of the property. Alternatively, the creditors maintain that if Williamson is permitted to amend his schedules, then the case should be remanded for a determination of whether Williamson is in fact entitled to the homestead exemption under state law. In this connection, the creditors, citing In re Lindberg, 735 F.2d 1087 (8th Cir.1984), request us to hold that the relevant date for determining Williamson's exemption eligibility is February 13, 1986, the date he converted his chapter 11 proceeding to a chapter 7 proceeding. Finally, the creditors contend that their lien does not impair Williamson's homestead exemption, and therefore may not be avoided by Williamson to any extent.
The district court assumed, without deciding, that Williamson's property was subject to a homestead exemption. The court then went on to hold that the bankruptcy court's allowing Williamson to change his exemption from federal to state after the sale of the property was clearly erroneous.
We disagree with the district court. First, we note that the general rule is to allow liberal amendment of exemption claims, absent bad faith, concealment of property, or prejudice to creditors. 1 The law in this circuit at least since 1969 has been to follow the general rule of liberal amendment of exemption claims. Thompson v. Powell, 413 F.2d 276, 277 (5th Cir.1969). Thompson was decided under Bankruptcy General Order 11, the predecessor to former Rule 110 and present Rule 1009. 2 Thompson held that schedule amendments ought to be allowed "when required in the interests of justice," when there is no surprise to the referee, and in the absence of bad faith or prejudice to the creditors. Id.
Current Rule 1009 provides, as did former Bankruptcy Rule 110, that a voluntary petition, schedule, or statement of financial affairs may be amended by the debtor as a matter of course at any time before the case is closed. The Third Circuit has held that former Rule 110 denied the courts discretion to deny leave to amend or even to require a showing of good cause. See In re Gershenbaum, 598 F.2d 779, 781-82 (3d Cir.1979). The Eleventh Circuit agreed with this interpretation of former Rule 110, adding only the caveat that a court may deny leave to amend if there is a showing of the debtor's bad faith or of prejudice to the creditors. In re Doan, 672 F.2d 831, 833 (11th Cir.1982). The Advisory Committee Note following Rule 1009 specifically states that Rule 1009 "continues the permissive approach adopted by former Bankruptcy Rule 110 to amendments of voluntary petitions and accompanying papers." We therefore find the standard envisioned by the Eleventh Circuit to be eminently reasonable, and because of the close similarity between former Rule 110 and current Rule 1009, we adopt this standard as our view of current Rule 1009.
In the case before us there is no allegation of Williamson's bad faith, and we see no evidence of any. As for prejudice, the Stinsons contend that the amendment prejudices them because if the amendment is allowed and Williamson is deemed eligible for the state claim, then the Stinsons' judgment will be avoided, not satisfied. This argument misconstrues the question of prejudice. It focuses on the ultimate outcome of the action rather than the harm to the creditor's litigating posture because of some detrimental reliance on the debtor's initial position. Prejudice to the creditor's legal or equitable...
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