Documente Academic
Documente Profesional
Documente Cultură
No. 12-2127
Appeal from the United States District Court for the Eastern
District of North Carolina, at Raleigh.
James C. Fox, Senior
District Judge. (5:11-cv-00280-F; 10-02562-8-SWH)
Argued:
WYNN,
Circuit
Decided:
Judges,
and
HAMILTON,
Senior
ARGUED: William Earl Brewer, Jr., THE BREWER LAW FIRM, Raleigh,
North Carolina, for Appellants.
Angus Scott McKellar, BATTLE,
WINSLOW, SCOTT & WILEY, PA, Rocky Mount, North Carolina, for
Appellees.
ON BRIEF: Raymond M. DiGuiseppe, Tara Twomey,
NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS, San Jose,
California,
for
Amicus
National
Association
of
Consumer
Bankruptcy Attorneys.
Martin P. Sheehan, SHEEHAN & NUGENT,
P.L.L.C., Wheeling, West Virginia, for Amicus The National
Association of Bankruptcy Trustees.
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PER CURIAM:
The Chapter 7 debtors in this case contend that because the
value
of
their
actual
interest
in
their
residence
does
not
the
lacked
bankruptcy
statutory
permission
to
estate,
authority
sell
the
such
to
that
grant
residence
as
the
the
bankruptcy
bankruptcy
part
of
his
court
trustee
duties
in
I.
On March 31, 2010, husband and wife Garon and Diane Reeves
(Debtors) filed a joint Chapter 7 bankruptcy petition in the
United States Bankruptcy Court for the Eastern District of North
Carolina.
Carolina.
11 U.S.C. 701-784.
On
the
real
property
schedule
of
their
petition,
Raleigh,
before
North
the
Carolina
bankruptcy
(Debtors
court
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on
Residence).
July
15,
At
2010,
the
parties
stipulated
that
Residence is $325,000.
the
fair
market
value
of
Debtors
(1)
of
Wells
Fargo
Mortgage
in
the
approximate
amount
of
mortgage
approximate
is
encumbered
amount
of
by
$382,300;
federal
and
(3)
no
tax
lien
equity
in
exists
the
in
Debtors Residence over and above the first mortgage lien and
the federal tax lien.
Because North Carolina is as an opt-out state with respect
to the Bankruptcy Codes uniform list of property for which a
debtor can seek to exempt from the bankruptcy estate, see 11
U.S.C.
522(b);
Debtors
to
N.C.
exempt
Gen.
any
Stat.
interest
1C-1601(f),
with
the
respect
ability
to
of
Debtors
Of relevance here,
($35,000)
in
value,
in
real
property
. . . that
the
aggregate
interest
in
the
real
property,
not
to
stands
in
contrast
to
exemptions
which
pertain
11
U.S.C.
522(d)(9)
(exemption
for
to
See,
professionally
(J.A. 96).
information,
Debtors
listed
the
following
Just below
information
denoted by an asterisk:
Debtors exempt their entire interest in this property
despite the lack of equity. The $60,000.00 amount is
the value of the interest in the residence that
debtors can exempt and without using up any wild card
exemption under NCGS 1C-1601(a)(2).
Should the
trustee or any other party in interest contend that
the[re] would be any funds available for distribution
to creditors after paying the consensual lien, [and]
the Federal Tax lien, . . . that party should file a
timely objection to this claim of exemption.
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in
it.
Debtors
filed
response
to
the
Trustees
exemptions
the
in
bankruptcy
Debtors
court
Residence.
stated
in
its
(J.A.
order
111).
that
its
the
Trustee
from
filing
subsequent
motion
seeking
assigned
by
the
IRS
or
some
other
method.
Id.
Trustee
subsequently
moved
for
authority
Id.
to
sell
In such
motion, the Trustee correctly stated that the IRS had agreed to
carve
out
30%
of
the
net
proceeds
of
the
sale
of
Debtors
Residence otherwise subject to the IRS tax lien for the payment
of allowed administrative claims, with any balance to be paid on
a pro rata basis to unsecured creditors.
Debtors objected to
allowing
respect
Residence
to
them
to
Debtors
from
the
reserve
their
Residence
bankruptcy
claimed
actually
estate,
such
exemption
removed
that
the
with
Debtors
Trustee
bankruptcy
to
specifically
sell
court
Debtors
rejected
granted
the
Residence.
Debtors
argument
Trustees
The
in
motion
bankruptcy
opposition
for
court
to
motion as follows:
All property of the debtors became property of the
estate at the time of the filing of the petition in
this case.
After the property came into the estate,
the debtors were entitled to exempt it under 522 of
the Code, which invoked the exemptions objections
procedure followed by the trustee.
See Tignor v.
Parkinson, 729 F.2d 977 (4th Cir. 1984); Shirkey v.
Leake, 715 F.2d 859, 863 (4th Cir. 1983).
In this
case, the debtors claimed exemptions in the Property
were upheld by the court, notwithstanding the fact
that there was indisputably no equity in the Property.
See In re McQueen, 196 B.R. 31 (E.D.N.C. 1995); In re
Thennes, Case No. 03-04271-5-ATS (Bankr. E.D.N.C. Oct.
7, 2004).
However, the effect of allowance of the
debtors exemptions in the Property was to exempt
their interest in the Property from the estate, not
the Property itself.
Schwab v. Reilly, 130 S. Ct.
2652 (2010).
- 7 -
the
(J.A. 25-26).
courts
order
our
court
as
the
second
layer
of
II.
In
the
present
appeal,
Debtors
acknowledge
that,
upon
the
amount
of
the
liens
encumbering
Debtors
Residence
Debtors
Residence
which
they
otherwise
may
have
had.
North
Carolina
law,
i.e.,
$60,000.00,
the
bankruptcy
estate,
such
that
the
bankruptcy
court
lacked
arguments
in
response
track
the
reasoning
of
the
flaw
in
position
is
without
merit.
The
fatal
an
asset
itself
from
the
bankruptcy
estate
and
certain
restaurant
equipment
as
exempt
appraisal
valued
the
equipment
and
placed
Id. at 2657-58.
at
an
amount
a
A
that
her
claimed
creditors.
exemption
and
the
Id.
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balance
distributed
to
her
Id.
In so opposing, the
in
Schedule
of
her
bankruptcy
petition
equaled
the
Id.
reasoned that her equating of the two values put the trustee on
sufficient notice that she intended to exempt the full value of
the equipment.
Id.
Id. at 2659.
The district court affirmed the bankruptcy court, and the Third
Circuit affirmed the district court.
Id.
In affirming the
the
entire
estimated
value
of
an
asset
reported
on
claimed
exemptions
entitled
[the
debtor]
to
the
declared
on
Schedule
and
the
amount
that
the
Code
Schwab,
Taylor.
Id.
In
setting
up
the
opposing
arguments, the Court noted that the debtor asserted that the
property claimed as exempt under the Bankruptcy Code by the
debtor
is
defined
by
reference
to
all
the
information
on
Id. at 2660.
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to
the
present
explained
the
appeal,
process
in
under
Id. at 2661-63.
so
the
agreeing,
the
Bankruptcy
Of
Schwab
Code
for
Id. at 2663-65.
certain
detriment.
Third
in
those
Id. at 2663-64.
Circuits
Bankruptcy
interests
decision
Codes
assets,
to
the
creditors
not
definition
only
of
fails
the
to
account
property
for
claimed
the
as
before
us
is
the
Courts
response
to
the
debtors
the
teachings
of
Schwab
to
the
commencement
of
their
the
present
appeal
bankruptcy
case,
their
legal
law,
Debtors
sought
to
exempt
an
aggregate
The
Residence.
bankruptcy
court
Following
entered
an
hearing
order
on
denying
the
matter,
the
the
Trustees
111).
Under
the
clear
teachings
of
Schwab,
because
title
to
Debtors
Residence
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remained
with
the
See 11 U.S.C.
tax
lien
as
carve-out
for
unsecured
creditors
has
no
the
bankruptcy
court
that
Debtors
will
receive
full
credit with respect to the IRS lien for any amount paid to
unsecured
creditors
carve-out.
from
the
sale
proceeds
as
part
of
the
where
the
[bankruptcy]
estate
has
no
equity
in
the
In
Here, the
benefit
creditors),
of
thus
the
bankruptcy
justifying
the
estate
Trustees
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(i.e.,
action
unsecured
in
selling
Debtors
Residence
as
opposed
to
abandoning
it.
See
In
re
Rambo, 297 B.R. 418, 433-34 (Bankr. E.D. Pa. 2003) (trustee may
sell debtors property under 11 U.S.C. 363, but generally only
to benefit unsecured creditors, i.e., when sale proceeds will
fully compensate secured creditors and produce some equity for
benefit of unsecured creditors).
III.
To summarize, Debtors Residence remained property of the
bankruptcy estate despite the bankruptcy court allowing Debtors
to reserve an exemption of $60,000 as their aggregate interest
in Debtors Residence subordinate to the first mortgage lien and
the federal tax lien.
such
asset
is
no
longer
property
of
the
bankruptcy
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