Opinion
Case No. 3:16-bk-3078-PMG
06-15-2017
In re: Philip DuWayne Dickison Linda Kay Honeycutt Dickison, Debtors.
Chapter 7
ORDER ON MOTION TO COMPEL DEBTORS TO TURNOVER PROPERTY TO THE TRUSTEE
THIS CASE came before the Court for hearing to consider the Chapter 7 Trustee's Motion to Compel Debtors to Turnover Property. (Doc. 32).
The property at issue is the portion of the Debtors' 2016 tax refund that is attributable to their prepetition income. The Debtors assert that the tax refund is not subject to turnover, because they previously paid the Trustee the sum of $22,640.00 in full settlement of all of their non-exempt assets, including the 2016 refund. (Doc. 35).
A settlement agreement in bankruptcy is interpreted as a contract, and the intent of the parties governs the settlement's interpretation and enforceability under general principles of contract law.
In this case, the compromise signed by the Trustee and the Debtors did not allocate any portion of the settlement amount to the Debtors' 2016 refund, and expressly provided that the 2016 tax refund was excluded from the terms of the settlement.
Based on the language of the settlement, the Court finds that the parties did not intend for the compromise to include the 2016 tax refund, and the Debtors have not asserted any other challenge to the Trustee's Motion for Turnover. Accordingly, the prepetition portion of the Debtors' 2016 tax refund is property of the estate that is subject to turnover to the Chapter 7 Trustee.
Background
The Debtors filed a petition under Chapter 7 of the Bankruptcy Code on August 12, 2016. On their initial schedule of assets filed with the petition, the Debtors did not list any interest in a tax refund. (Doc. 1).
On October 21, 2016, the Debtors filed an Amended Schedule of Assets, Liabilities, and Exemptions (Doc. 19). On the Amended Schedule, the Debtors listed a 2015 tax refund in the amount of $10,157.00, but did not list any interest in a 2016 tax refund.
On October 28, 2016, the Chapter 7 Trustee filed an Objection to the Debtors' Amended Claim of Exemptions. (Doc. 21).
On February 10, 2017, the Trustee and the Debtors filed a Motion to Approve Compromise of Claim. (Doc. 28). Paragraph 2 of the Motion refers to the disputed value of the Debtors' scheduled personal property, and to the Trustee's objection to the Debtors' claimed exemptions. Paragraphs 4 and 5 of the Motion provide as follows:
4. Based on this review the Debtors and the Trustee have agreed to a compromise whereby the Debtors shall make a lump sum payment of $22,640.00 to the Trustee on or before January 15, 2017, to resolve the above-referenced issues. From the funds so received, $1,500.00 shall be for the Debtors' Westin Kierland Villas timeshare, $10,157.00 shall be for the Debtors' 2015 federal income tax refund, $7,000.00 shall be for the Debtors' jewelry, and $3,983.00 shall be for the Debtors' bedroom sets, end tables, pots, pans, dishes, silverware, linen, piano, chairs, sofa, desk, lamps, and entertainment center. . . . The claim, if any, of the Debtors in the Philinda, Inc. bankruptcy, Case No. 6:16-bk-05172, shall remain property of the bankruptcy estate.
5. The Trustee asserts the estate is entitled to 225/365 of the Debtors' 2016 federal income tax refund, less any earned income credit (the "Refund"). The Debtors dispute this contention. Accordingly, the parties agree that the issue of the Refund remains at issue and is specifically excluded from this compromise. By agreeing to this compromise, neither the Trustee nor the Debtors have waived their respective rights and/or interests in the Refund. Debtors agree not to spend the Refund should it be received prior to resolution of this issue.(Doc. 28, ¶¶ 4, 5)(Emphasis supplied). The Motion was signed by the Trustee's attorney, the Debtors' attorney, and the Debtors individually.
No objections to the compromise were filed within the time permitted in the Motion under the Local Rules.
On March 9, 2017, the Court entered an Order Granting Motion to Approve Compromise of Claim. (Doc. 30). No motions to reconsider the Order have been filed under Rule 9023 or Rule 9024 of the Federal Rules of Bankruptcy Procedure.
On March 30, 2017, the Trustee filed the Motion to Compel Debtors to Turnover the 2016 tax refund that is currently before the Court. (Doc. 32). In their Objection to the Motion, the Debtors contend that the prior compromise "included the portion of the 2016 tax refund" claimed by the Trustee in the Motion for Turnover. (Doc. 35, ¶ 20).
Discussion
In his Motion, the Trustee seeks to recover the portion of the Debtors' 2016 tax refund that is attributable to their prepetition income. In response to the Motion, the Debtors assert only that the refund was included in the prior settlement that they reached with the Trustee regarding their non-exempt assets.
Contract law governs the interpretation and enforceability of settlement agreements in bankruptcy cases. In re Adamo, 2007 WL 2316930, at 2 (Bankr. M.D. Fla.). "Settlement agreements are to be interpreted and governed by the law of contracts." In re Hillsborough Holdings Corporation, 267 B.R. 882, 892 (Bankr. M.D. Fla. 2001). See also In re McCoy, 260 B.R. 863, 868 (Bankr. N.D. Ill. 2001)("A settlement agreement is interpreted as a contract.").
Under general principles of contract law, the intent of the parties governs the interpretation of a contract. To determine the parties' intent, courts should consider the language, subject matter, and purpose of the contract. Allegheny Casualty Company v. Archer-Western/Demaria Joint Venture III, 2014 WL 10915507, at 4 (M.D. Fla.); Hartford Casualty Insurance Company v. Lanzo Construction Co., 2013 WL 11927713, at 4 (S.D. Fla.). See also In re General Plastics Corp., 158 B.R. 258, 283 (Bankr. S.D. Fla. 1993)("The central concern in interpreting contracts is the intent of the parties," which should be determined by the contract's language, subject matter, and purpose.).
In this case, the compromise that was filed with the Court on February 10, 2017, was signed by the Trustee and also by the Debtors, individually. (Doc. 28). The Court has considered the language, subject, and purpose of the compromise, and finds that the parties did not intend for the settlement to resolve the Trustee's claim to the Debtors' 2016 tax refund. The Court reaches this conclusion for at least the following reasons:
1. The compromise refers to the parties' dispute regarding the value of the Debtors' scheduled personal property and claimed exemptions (¶ 2), but the 2016 tax refund was not listed on the Debtors' schedules or claimed as exempt in the bankruptcy case.
2. The compromise provides for the Debtors to pay the Trustee the sum of $22,640.00, and allocates the entire settlement amount to specific assets of the Debtors other than the 2016 tax refund. (¶4).
3. The compromise expressly provides that the 2016 tax refund is excluded from the settlement. (¶ 5).The language of the compromise shows that its subject matter involved certain property that was disclosed on the Debtors' bankruptcy schedules, and that the purpose of the compromise was to settle the bankruptcy estate's interest in the Debtors' timeshare, 2015 tax refund, jewelry, and household goods. The parties recognized the dispute regarding the Debtors' 2016 tax refund, but expressly excluded the 2016 refund from the compromise's terms and effect.
The parties did not intend for the compromise to include the 2016 tax refund, and the Debtors have not asserted any other challenge to the Trustee's claim to the 2016 refund.
It is well-established that a "tax refund received postpetition is property of the estate if it is attributable to wages earned and withholding payments made during prepetition years." In re Ascuntar, 487 B.R. 319, 321 (Bankr. S.D. Fla. 2013).
An income tax refund received after a bankruptcy petition date is subject to turnover if at least a portion of the tax year preceded the filing of the bankruptcy case. (Citations omitted). The portion of the refund attributable to pre-petition withholding is properly included in the estate. (Citation omitted). Courts will prorate refunds based upon the number of calendar days before and after the petition.In re Dussing, 205 B.R. 332, 333 (Bankr. M.D. Fla. 1996). See also In re Moody, 241 B.R. 238, 241-42 (Bankr. M.D. Fla. 1999)(Tax refunds based on prepetition earnings are property of the bankruptcy estate.).
In this case, the Debtors filed their Chapter 7 petition on August 12, 2016, and the Trustee seeks to recover 225/365 of their 2016 federal income tax refund. (Doc. 32). The 2016 tax refund is not included in the parties' prior settlement, and the prepetition portion of the refund is property of the estate that is subject to turnover to the Chapter 7 Trustee.
Accordingly:
IT IS ORDERED that the Chapter 7 Trustee's Motion to Compel Debtors to Turnover Property is granted, and the Debtors are directed to turn over to the Trustee the portion of their 2016 federal income tax refund that is attributable to their prepetition income.
DATED this 15 day of June, 2017.
BY THE COURT
Paul M. Glenn
PAUL M. GLENN
United States Bankruptcy Judge