Opinion
Case No. 95-14853-AM
February 8, 1996
Ann N. Kathan, Esquire, Gold Stanley, P.C., Alexandria, VA, of Counsel for H. Jason Gold, chapter 7 trustee
John D. Sawyer, Esquire, Hudock, Sawyer Azarcon, P.C., Vienna, VA, of Counsel for the debtors
MEMORANDUM OPINION
Before the court is the chapter 7 trustee's timely-filed objection to the debtors' claimed exemptions. A hearing was held on February 6, 1996. After receiving evidence and hearing argument, the court took the matter under advisement. Among the issues raised are whether the debtors' exemptions should be disallowed in toto because their schedules fail to properly specify the statutory basis for the exemptions claimed, and whether the debtor husband may properly claim a 1988 Ford Bronco exempt as a tool of the trade.
Facts
The debtors, who are husband and wife, filed a joint voluntary petition under chapter 7 of the Bankruptcy Code in this court on November 1, 1995. With their petition, they filed the required schedules and statements, including Schedule C, "Property Claimed As Exempt." On this schedule they listed every asset they owned. The total value claimed exempt was $48,109.40. Among the assets listed was a 1988 Ford Bronco, which the debtors listed as having a fair market value of $2,000 and an exempt value of $10.00. For each asset, the statute listed as the basis of the exemption was "Code of Virginia, 34-4, 34-26." On November 7, 1995, the debtors, who are residents of Fairfax County, Virginia, recorded in the clerk's office of the Circuit Court of Fairfax County, Virginia, a "Homestead Deed for Real and Personal Property" listing the same items they claimed exempt on their Schedule C.
The schedules reflect that the Bronco is subject to a $3,368.88 lien in favor of First Union National Bank.
At the meeting of creditors held on December 11, 1995, the chapter 7 trustee objected to the failure of the Schedule C to state with specificity which exemption the debtors were relying on with respect to each asset they claimed exempt. In response, the debtors filed an amended Schedule C on December 28, 1995. This listed the same assets as the original Schedule C, but did include citations to specific statutory sections and subsections for each category of assets. Relevant to the 1988 Ford Bronco, the value was amended upward to $6,000, which was also the value claimed exempt, and the basis asserted for its exemption was "Code of Virginia, 34-26(7)." On January 5, 1996, the chapter 7 trustee filed an objection to the debtors' exemptions. Prior to the hearing, the debtors filed on January 19, 1996, a second amended Schedule C. Although the chapter 7 trustee asserts that he was not sent a copy, the original filed with the court includes a certificate of service, signed by counsel for the debtors, reflecting service on the trustee.
At the hearing, the debtor husband testified with respect to the 1988 Ford Bronco. Although describing himself as a painting, drywall and ceiling "contractor," he testified that since October 1995 he has practiced his trade as an employee of a company known as METE Corporation, which is a painting and drywall contractor. Previously, he had been self-employed for many years, working for his own company, Everson Enterprises, Inc., doing the same type of work. The stock of Everson Enterprises is wholly owned by Mr. Everson. Everson Enterprises is not currently engaged in business, and, according to Mr. Everson's testimony, has debts that far exceed its assets. Everson Enterprises owned (and still owns) two vehicles of its own, a 1986 Dodge and a 1993 pickup, neither of which is listed on debtors' schedules, although Mr. Everson's stock in Everson Enterprises, which is valued on the schedules at $1.00, is both listed as an asset and claimed as exempt.
The 1988 Ford Bronco has no logo or other external identification reflecting its use as a commercial vehicle. Mr. Everson explained that this was because restrictive covenants where he lived prohibited the parking of commercial vehicles. The vehicle also has no external racks or other facilities for carrying supplies. It is, however, equipped with an "overload package" to permit the carrying of heavier-than-normal loads and the towing of a trailer. Mr. Everson testified that he uses the Bronco in his employment to haul tools and materials (such as paint, drywall, studs, and scaffolding) to and from job sites where he performs work, with the larger items being carried on an 8' x 8' trailer that he hauls behind the Bronco. He also uses it to pick up materials (again, such as paint and drywall) to take to the job site. He testified that his employer does not provide a vehicle for him to use for such purpose and that the Bronco is necessary to his trade or business because without it he could not get to or perform his work.
Conclusions of Law and Discussion A.
This court has jurisdiction of this controversy under 28 U.S.C. § 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B). The trustee asserts that, because the debtors have not claimed their exemptions with the requisite particularity, they are not entitled to any exemptions at all; that the 1988 Ford Bronco cannot be exempted as a "tool of the trade"; that several of the claimed exemptions exceed the amounts which the debtors are entitled to hold exempt; and that the items to which the debtor has affixed a value of $1.00 are not exempt to the extent the value of the asset exceeds $1.00. The debtors, at the time they filed their second amended Schedule C, also filed a response to the trustee's objections setting forth the "specific rationale" for each of the items claimed exempt At the hearing, debtors' counsel conceded that the values shown on the schedules were incorrect with respect to one of the bank accounts, and he advised the court that both the Schedule C and the homestead deed would be further amended. Debtors' counsel estimated that, once amended, there would be approximately $ 1,200 in one of the bank accounts which would exceed the amount that
These consist of the 900 shares of stock in Everson Enterprises, Inc. and two term life insurance policies.
The "Response," however, is not entirely consistent with the second amended Schedule C to which it refers. For example, the Response reflects that a 1987 Cadillac DeVille is claimed exempt in the amount of $4,000 ($2,000 by Mr. Everson and $2,000 by Mrs. Everson) under § 34-26(7), Code of Virginia, which permits up to $2,000 of the value of an automobile to be claimed exempt. The second amended schedule C, however, reflects $2,000 being claimed exempt under D 34-26 and $2,000 under § 34-4. A similar confusion exists with respect to a 1990 Ford Mustang, which the Response shows being claimed exempt entirely under § 34-4, while the second amended schedule C splits the exemption between § 34-26 and § 34-4.
These consist of the 900 shares of stock in Everson Enterprises, Inc. and two term life insurance policies.
The "Response," however, is not entirely consistent with the second amended Schedule C to which it refers. For example, the Response reflects that a 1987 Cadillac DeVille is claimed exempt in the amount of $4,000 ($2,000 by Mr. Everson and $2,000 by Mrs. Everson) under § 34-26(7), Code of Virginia, which permits up to $2,000 of the value of an automobile to be claimed exempt. The second amended schedule C, however, reflects $2,000 being claimed exempt under D 34-26 and $2,000 under § 34-4. A similar confusion exists with respect to a 1990 Ford Mustang, which the Response shows being claimed exempt entirely under § 34-4, while the second amended schedule C splits the exemption between § 34-26 and § 34-4. the debtors are entitled to hold exempt, and that such amount would be turned over to the trustee.
B.
Under § 522, Bankruptcy Code, an individual debtor may hold exempt certain property that would otherwise constitute property of the estate and be available to pay the claims of creditors in the bankruptcy case. In a state which has not "opted out" of the Federal exemptions set forth in § 522(d), a debtor may elect either the Federal exemptions or the exemptions available under state law. § 522(b), Bankruptcy Code. In a state which has "opted out," the debtor may claim only those exemptions that exist under state law. Id. A debtor is required to file a list of the property he or she claims exempt. Unless a party in interest objects, "the property claimed as exempt on such list is exempt." § 522(1), Bankruptcy Code. Under F.R.Bankr.P. 4003(a), "[a] debtor shall list the property claimed as exempt under § 522 of the Code on the schedule of assets required to be filed. . . ." The trustee or any creditor may file an objection within 30 days after the conclusion of the meeting of creditors or within 30 days after the filing of "any amendment to the list or supplemental schedules." F.R.Bankr.P. 4003(b). If an objection is filed, the objecting party has the burden of proof. F.R.Bankr.P. 4003(c).
Virginia has "opted out" out of the Federal exemption scheme. § 34-3.1, Code of Virginia (1950), as amended. Consequently, the debtors may claim only those exemptions available under Virginia law. In re Calhoun, 47 B.R. 119 (Bankr.E.D.Va. 1985). Relevant to the present controversy are the two most-commonly invoked Virginia exemptions, the "homestead" exemption under § 34-4, Code of Virginia, and the "poor debtor's" exemption under § 34-26, Code of Virginia. The homestead exemption allows a debtor to hold exempt from the claims of creditors up to $5,000.00 worth of real or personal property selected by him or her. The exemption is increased slightly if the debtor supports dependents or is a disabled veteran. In order to claim the exemption, the debtor must record with the clerk of the circuit court of the city or county where he or she lives (and, if the property claimed exempt is real estate, in the city or county where the property is located) a writing known as a homestead deed. § 34-6, Code of Virginia (real property); § 34-14, Code of Virginia (personal property). The poor debtor's exemption is separate from the homestead exemption and consists of certain specific categories of assets, some limited in value and some not, that a debtor may hold exempt. No special action is required under state law in order to claim the poor debtor's exemption.
Although the statute grants the exemption to a "householder," in bankruptcy both husband and wife may each claim the exemption, for a total of $10,000. Cheeseman v. Nachman (In re Cheeseman), 656 F.2d 60 (4th Cir. 1981).
For each dependent a "householder" supports, he or she is entitled to an additional $500 exemption. § 34-4, Code of Virginia. A disabled veteran is entitled to an additional $2,500. § 34-4.1, Code of Virginia.
"No officer or other person shall levy or distrain upon, or attach, such articles, or otherwise seek to subject such articles to any lien or process. It shall not be required that a householder designate any property exempt under this section in a deed in order to secure such exemption" § 34-26, Code of Virginia (emphasis added).
C.
In the present case, the debtors' original schedule C made no attempt whatsoever to distinguish between the exemptions claimed under the homestead exemption and the poor debtor's exemption, making it at least difficult and possibly impossible for the trustee and creditors to determine whether the exemptions were properly claimed. The confusion was compounded because the debtors superfluously included on their homestead deed not only the property as to which they were claiming a homestead exemption but also the property they were claiming exempt under the poor debtor's exemption. Thus, although a husband and wife with three dependents could, on the face of the statute, claim a homestead exemption of no more than $11,500, their homestead deed claims a total of $58,109.40 as exempt, clearly well in excess of any amount to which they are entitled.
The debtors claim three of their four children as dependents on their schedules and on their homestead deed.
In their second amended schedule C, the debtors do break down their claimed exemptions as between the homestead and poor debtor's exemptions. They now claim exempt under their homestead exemption $2,000 of the value of a 1987 Cadillac DeVille and $1,500 of the value of a 1990 Ford Mustang, the two term life insurance policies, a security deposit with a landlord, three bank accounts, and the stock in Everson Enterprises. The remaining items are claimed exempt under various subsections of § 34-26, Code of Virginia. Consequently, whatever confusion may have existed prior to the filing of the second amended schedule C has now been rectified. While the practice exemplified by the original schedules is not to be commended and has obviously put the trustee to considerable effort that might readily have been avoided had the basis for the claimed exemptions been properly described in the first instance, it does not rise to the level of inequitable conduct that would justify a denial of exemptions altogether, and to the extent the trustee is seeking such relief, it will be denied.
As noted above, this differs from the breakdown in their response to the trustee's objection, but at this point the second amended schedule C would have to be treated as controlling.
In Tignor v. Parldnson (In re Tignor), 729 F.2d 977 (4th Cir. 1984), the Fourth Circuit stated that "exceptional circumstances" might justify a refusal to permit a debtor to amend his or her schedule of exemptions to add a previously omitted item, but that the case before it did not present such circumstances. The Court further ruled, "The trustee may not successfully claim detrimental reliance simply because a schedule that could be amended was in fact amended, nor may he claim laches simply because of the passage of time between the petition or the creditors' meeting and the amendment." 729 F.2d at 979.
D.
There remains, however, the other objections raised by the trustee. These will be discussed briefly in turn. First, as to those items to which the debtors affixed a $1.00 valuation, it is clear that the debtors are entitled to hold such items exempt only to the extent of the $1.00 claimed and not to the extent of any value in excess of the $1.00. Addison v. Reaves, 158 B.R. 53 (E.D.Va. 1993). Second, the debtors are entitled to claim exempt, under their homestead exemption, no more than $11,500. To the extent the total of the assets now claimed under that exemption exceed such amount in the aggregate, the exemption of the excess will be disallowed. Since the debtors represented that they would be filing a third amended Schedule C and an amended homestead deed, it is premature to rule on valuation issues. Accordingly, and in order to preclude the trustee from having to file a new objection, the court will continue the trustee's present objection for approximately 60 days, with leave to the trustee, now that the debtors have clarified their position, to supplement his objection if he believes specific items have been undervalued.
Case law in this Circuit has long permitted a debtor who has filed a timely homestead deed to amend the value of an item of property already listed. In re Waltrip, 260 F. Supp. 448 (E.D.Va. 1966). However, a homestead deed cannot be amended to add other property not previously listed, where the property was owned by the debtor at the time the original homestead deed was filed. In re Emerson, 129 B.R. 82 (Bankr.W.D.Va. 1991), aff'd, 962 F.2d 6 (4th Cir. 1992).
E.
There remains, finally, the claimed exemption for the 1988 Ford Bronco as a tool of the debtor's trade under § 34-26(7), Code of Virginia. The cited subsection, which is part of the poor debtor's exemption, exempts the following category of assets:
Tools, books instruments, implements, equipment, and machines, including motor vehicles, vessels, and aircraft, which are necessary for use in the course of the householder's occupation or trade not exceeding $10,000 in value, except that a perfected security interest on such personal property shall have priority over the claim of exemption under this section. A motor vehicle, vessel or aircraft used to commute to and from a place of occupation or trade and not otherwise necessary for use in the course of such occupation or trade shall not be exempt under this subsection. "Occupation," as used in this subdivision, includes enrollment in any public or private elementary, secondary, or vocational school or institution of higher education.
(emphasis added). It is clear on the face of the statute that a motor vehicle may constitute a tool of the trade. Accordingly, the question before the court is whether the truck is "necessary for use" in the course of the debtor's occupation or trade.
At the outset, it is well-settled in Virginia that exemptions are to be liberally construed in favor of the debtor. Tignor v. Parkinson (In re Tignor), 729 F.2d 977, 981 (4th Cir. 1984). Prior to the 1990 amendments to § 34-26, Code of Virginia, a number of courts had ruled that debtors could not exempt motor vehicles as tools of the trade under the statute as it then read. See, In re: Dummitt, 2 B.R. 136 (Bankr.W.D.Va. 1980) (travelling salesman's automobile not tool of the trade); Associates Financial Services Co. v. Williams, 39 B.R. 944 (Bankr.W.D.Va. 1984) (salesman's automobile not tool of the trade even though used by debtor to pursue livelihood); In re: Alien, 52 B.R. 206 (Bankr.E.D.Va. 1985) (jeep and van not tools of a carpenter's trade). The 1990 amendments broadened the scope of the exemption for tools of the trade, first, by no longer permitting only a "mechanic" to claim it, and second, by specifically recognizing that a motor vehicle could constitute a tool of the trade. Even as amended, however, the statute still requires that a particular tool, implement, or machine be "necessary," See, In re: Quidley, 39 B.R. 362, 367 (Bankr.E.D.Va. 1984) (Shelley, J), where this court held that the test was "whether `the item claimed to be exempt [is] reasonably necessary both in kind and in quality for the workman to perform his chosen craft in an efficient and competent manner'" and that "the purpose of the exemption statute is" to set forth and protect the basic tools and utensils in order to aid the debtor in continuing in his means of livelihood' and not to "`[guarantee] to the mechanic each and every possible and potential tool that can be used to set up the perfect workshop.'" The Fourth Circuit, in an opinion predating the 1990 amendment to § 34-26, observed,
At that time the statute allowed "every householder residing in this State * * * to hold exempt from levy or distress the following articles * * * (5) * * * in case of a mechanic, the tools and utensils of his trade."
Although no test has emerged, the standard applied by the courts appears to be whether the items are "specially suited" to business use or peculiar to the trade of the debtor.Dominion Bank v. Nuckolls, 780 F.2d 405, 413 (4th Cir. 1985) (internal citations omitted).
The trustee points to circumstantial evidence suggesting that the Bronco is not "necessary" to the debtor's trade. For example, it has no special external adaptations for such purposes and does not bear a business sign or logo. Additionally, the court is concerned that the debtor clearly had (and through ownership of Everson Enterprises still has) the use of two motor vehicles that presumably were necessary in his business before he stopped working for himself and became an employee of another contractor. If the Bronco, which apparently was purchased while he still carried on his trade through his own company, was "necessary" to his trade, why did he title it in his own name rather than in the name of the business, as he apparently did with respect to the other two vehicles? Against the inferences that might be might be drawn from these circumstances is the debtor's testimony that the Bronco is necessary in order for him to carry out the duties of his employment. There can be little doubt that the particular uses made by Mr. Everson of the Bronco go beyond the "mere commuting" exclusion in § 34-26(7) and appear to be the type of uses that would be "necessary" for a person in Mr. Everson's trade if, as he testified, his employer does not provide a vehicle for such purpose. What is difficult for the court to accept, however, is that the vehicle is "necessary" in the sense of being the only vehicle available for such purpose. The debtor has separately claimed exempt a 1987 Cadillac DeVille and 1990 Ford Mustang. In addition, the debtor effectively has at his disposal the 1986 Dodge and a 1993 pickup that belong to Everson Enterprises. The Cadillac and the Mustang would not on the face of it appear adapted to the uses for which Mr. Everson testified he uses and needs a motor vehicle in his trade. No compelling reason appears, however, why the 1993 pickup, which he presumably did use in his business, could not be used for the purposes for which he is now using the Bronco. As noted in Quidley, supra, the purpose of the exemption statute is to protect the basic tools and equipment that the debtor needs to continue his livelihood and not to "`[guarantee] to the mechanic each and every possible and potential tool that can be used to set up the perfect workshop.'" Here, the debtor is attempting to keep (by exempting the stock in Everson Enterprises and the Bronco) three vehicles for use in his trade. Unquestionably, he is entitled to one. At this point, it is not clear whether the trustee will attempt to administer the debtors' stock in Everson Enterprises and whether the debtor will have the continued use of the two vehicles that belong to it. But on the present record, the court cannot find that the Bronco is "necessary" to Mr. Everson's trade. Accordingly, his claimed exemption under § 34-26(7), Code of Virginia, must be denied.
Ruling
A separate order will be entered sustaining the trustee's objection to the exemption of the Ford Bronco; to the assets now claimed exempt on the homestead deed to the extent their aggregate value exceeds $11,500; and to any asset to the extent its value exceeds the value listed by the debtors. The objection will be set for a further hearing in approximately 60 days to permit the debtors to further amend their schedule C and homestead deed if they are so advised and to permit the trustee to supplement his objections in light of this opinion and any amendments the debtors may make to their schedules. Subject to the forgoing, however, the debtors' claimed exemptions will be allowed.