Opinion
Case No. 13-15171
01-22-2015
In Re: Thomas James Headley Sara Marie Headley Debtors
Chapter 7
ORDER DENYING MOTION TO REOPEN BANKRUPTCY AND TO AMEND PETITION
Before the Court is Defendant Thomas James Headley and Defendant Sara Marie Headley's (collectively, the "Debtors") Motion to Reopen Bankruptcy and to Amend Petition (the "Motion") (Doc. 23) and Answer to Trustee's Complaint (the "Answer") (Adv. No. 14-1063 Doc. 4), and chapter 7 trustee E. Hanlin Bavely's (the "Trustee") Response (the "Response") (Adv. No. 14-1063 Doc. 7). In the adversary proceeding, the Trustee is seeking to avoid as a fraudulent transfer the Debtors' conveyance of a vacant lot to Defendants Cornelius Ketchum and Ann Ketchum (the "Ketchums") under 11 U.S.C. § 544(b), 11 U.S.C. § 548, and the Ohio Uniform Fraudulent Transfer Act. The Trustee also seeks a declaratory judgment under 28 U.S.C. § 2201 and 28 U.S.C. § 2202 that the conveyance was a fraudulent transfer and that the Trustee has the right to avoid such transfer and liquidate the real property for the benefit of the bankruptcy estate.
I. Background and Facts
The Debtors filed their petition (Doc. 1) under chapter 7 of the Bankruptcy Code on November 12, 2013. The Debtors did not list any real property on Schedule A. At the meeting of creditors, the Trustee learned of a potential fraudulent transfer of a vacant parcel of land worth $18,000. On August 28, 2014, the Trustee filed a complaint (the "Complaint"), seeking to avoid the alleged fraudulent transfer by the Debtors and seeking a declaratory judgment of his right to avoid such transfer and liquidate the real property for the benefit of the bankruptcy estate. The Complaint names as Defendants both the Debtors and the Ketchums. The Ketchums are the parents of the debtor-wife, Sara Marie Headley.
The alleged fraudulent transfer concerns a vacant three acre parcel of land located in Sterling Township in Brown County, Ohio (the "Lot"). The Ketchums owned the Lot prior to June 29, 2010. On June 29, 2010, the Ketchums conveyed the Lot by deed to the Debtors as husband and wife, jointly with rights of survivorship. According to the Debtors' Statement of Financial Affairs (Doc. 11), the Debtors received the Lot as a gift from the Ketchums with the intention that Debtors would build a home on the land. On October 10, 2013, thirty-three days prior to filing their petition, the Debtors re-conveyed the Lot back to the Ketchums for no value. The Debtors re-conveyed the Lot back to the Ketchums because they were unable to secure a construction loan to build a home as they had originally intended.
II. Positions of the Parties
The Debtors move the Court "to allow them to reopen their bankruptcy matter so they may more properly address the real estate" at issue. In the Answer, the Debtors admit that they improperly transferred the Lot prior to filing their petition and move the Court to "allow them to have the property transferred back to them and to amend their Petition and schedules to reflect the same," with the intention of amending Schedule C to claim the Ohio homestead exemption in the Lot. In sum, the Debtors' Motion and Answer filings present the following three requests for relief which are now before the Court: (1) to reopen the main bankruptcy case, (2) for leave to cause a transfer of the Lot from the Ketchums back to themselves, and (3) to amend their schedules to include the Lot as an asset and claim the Ohio homestead exemption.
In his Response, the Trustee suggests that Debtors' counsel has confused the order of discharge with an order closing the case or part of the case, and argues that the Debtors' request to reopen the bankruptcy matter should be denied as unnecessary. The Trustee also notes that he believes that a response to the Debtors' request to amend their filings to claim a homestead exemption would be premature at this stage of the proceeding, but expresses his intention to object to any such exemption if claimed.
IV. Discussion
A. Request to Reopen the Main Bankruptcy Case
As an initial note, regarding the Debtors' request to reopen their main bankruptcy case, it would appear that the Trustee is correct that the Debtors' counsel has mistaken the order of discharge for an order closing the bankruptcy case. While a discharge order has been entered, the Debtors' bankruptcy case remains open pending the outcome of the adversary proceeding. Therefore, a motion to reopen the Debtors' case under Federal Rule of Bankruptcy Procedure 5010 and pursuant to 11 U.S.C. § 350(b) is unnecessary and moot. To the extent that the Motion requests such relief, it is DENIED.
B. Granting Leave to the Debtors to Cause a Transfer of the Lot from the Ketchums Back to the Debtors
The Debtors argue no basis in law for the request to cause the transfer of the Lot from the Ketchums back to the Debtors. The Lot is not currently property of the estate and the Ketchums' re-conveyance of the Lot to the Debtors would not bring the property into the estate under section 541. The Debtors did not retain any interest in the Lot following their October 10, 2013 pre-petition transfer of the Lot to the Ketchums. As such, the Lot is not property of the estate under section 541(a)(1) because it was not titled in the Debtors' name nor did the Debtors retain any equitable interest in it as of the petition filing date. Further, if the Ketchums re-conveyed the Lot to the Debtors, the Lot would not be brought into the estate under section 541(a)(5) because such a transfer is not acquisition through inheritance, divorce, or life insurance benefit within 180 days of the filing of the petition. Section 541(a)(7) is also inapplicable as relates to the Motion, as the Lot would not be acquired by the estate itself (except to the extent that the estate may recover the property by way of the adversary proceeding) nor acquired with estate property.
Furthermore, the Lot is the subject of the ongoing adversary proceeding brought by the Trustee to avoid the Debtors' pre-petition transfer of the Lot to the Ketchums. If the Lot were now re-conveyed from the Ketchums back to the Debtors, such conveyance would be nullified if the Trustee succeeds in his action to avoid the pre-petition transfer as a fraudulent transfer. The Lot is not property of the estate under section 541 and the Debtors cite no legal authority or basis supporting their request for leave to cause a re-conveyance of the Lot. For the foregoing reasons and because the parties' respective rights in the Lot will be addressed in by the pending adversary proceeding, the Motion is DENIED to the extent that it requests the Court's permission to cause a re-conveyance of the Lot to the Debtors at this time.
If the Debtors' intention was to request relief from stay in order to cause a re-conveyance of the Lot to the Debtors, the Court believes that relief from stay under section 362 of the Bankruptcy Code is not an appropriate mechanism here. The Lot is currently the property of the Ketchums and the Debtors essentially seek the Court's permission to have the Ketchums gift them property (again). The Lot is not currently subject to the stay and the Ketchums are not a creditor or adverse party that is attempting to take action against the Debtors or any property of the estate. Further, it is unclear whether the Debtors could move for relief from stay in order to allow another party to take action. Moreover, the Debtors have cited no basis for relief under section 362. See 11 U.S.C. § 362(d)(1)-(2). --------
C. Amending the Petition and Schedules to Include the Lot as an Asset and Claim a Homestead Exemption
The Debtors cannot amend their schedules to include the Lot as an asset and claim a homestead exemption because, as discussed above, they did not have a legal or equitable interest in the Lot at the time the petition was filed. Therefore, the Debtors cannot now claim to have such interest in the Lot on their schedules. Further, they cannot claim an exemption in property that they did not own as of the petition filing date and which is not brought into the estate by operation of section 541. The unavailability of the homestead exemption (discussed in Section D) renders the requested amendment moot in any case.
D. Availability of the Ohio Homestead Exemption
Ohio's homestead exemption allows a person domiciled in the state to hold exempt their "interest, not to exceed [$132,900.00], in one parcel or item of real or personal property that the person or a dependent of the person uses as a residence." O.R.C. § 2329.66(A)(1)(b). The Ohio Supreme Court has stated that the residence requirement for homestead can be met by actual or constructive residence. Mut. Bldg. & Inv. Co. v. Efros, 152 Ohio St. 369, 373, 89 N.E.2d 648, 651 (1949). However, where the premises has never been occupied as a residence, the right to a homestead "cannot be acquired by a mere intention to use them as such at some indefinite future time." Id.
Interpreting Ohio's homestead exemption, bankruptcy courts in Ohio have held that a demonstrated intent to occupy vacant premises is necessary to meet the residence requirement for homestead. See In re Lusiak, 247 B.R. 699, 703 (Bankr. N.D. Ohio 2000); In re Cottingim, 7 B.R. 56, 58 (Bankr. S.D. Ohio 1980). In In re Cottingim, the court found that a debtor could claim a homestead exemption without actual residence or occupancy if (1) there is a demonstrated present intention to occupy the premises at some definite future time, and (2) there is tangible evidence of actual ongoing preparations to occupy the premises. In re Cottingim, 7 B.R. at 58. Applying the In re Cottingim test in the context of lien avoidance, the court in In re Dailey held that a vacant lot on which a debtor intended to build a residence did not qualify for homestead exemption because the debtor had not actually taken any steps toward building a home on the vacant lot. In re Dailey, 405 B.R. 274, 276 (Bankr. S.D. Ohio 2007). The court therefore found no demonstrated present intention to occupy the premises at a definite future time or ongoing preparations to occupy the property. Id.
Even assuming, arguendo, that the Lot was property of the bankruptcy estate as of the filing date of the petition, the Debtors could not claim a homestead exemption in the Lot. Id. The Lot remains vacant, the Debtors have not expressed a present intention to occupy the Lot at a definite future time, and there is no evidence of any ongoing preparations to occupy the property. The Debtors cannot establish actual or constructive residence on the Lot for the purposes of claiming the Ohio homestead exemption.
V. Conclusion
For the reasons stated above, the Debtors' Motion requesting 1) to reopen the bankruptcy case, 2) leave to cause a transfer of the Lot back to the Debtors, and 3) to amend their schedules to include the Lot and claim a homestead exemption in it is DENIED.
SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/_________
Burton Perlman
United States Bankruptcy Judge Dated: January 22, 2015 Copies to:
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