Opinion
No. 95-13250-AM, Adversary Proceeding No. 95-1443
September 13, 1996
Kenneth H. Rosenau, Esquire, Rosenau Rosenau, Washington, D.C., for the plaintiff
Steven B. Ramsdell, Esquire, Tyler, Bartl, Burke Albert, P.L.C., Alexandria, VA, for the debtor-defendant
MEMORANDUM OPINION AND ORDER
Before the court is a "Motion for Turnover of Funds" filed in this adversary proceeding by the plaintiff on September 11, 1996. Essentially, the plaintiff seeks an order directing the chapter 7 trustee, H. Jason Gold, to turn over to her $5,697.00 that the trustee is expected to pay to the defendant as the defendant's exempt property.
The defendant, Ezzat Zein, filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on July 28, 1995. H. Jason Gold was appointed as the trustee of the bankruptcy estate. Among the debtor's assets was his interest in a business known as Zein, Inc., d/b/a Samadi Sweets Cafe. By order dated January 23, 1996, this court authorized the trustee to sell the debtor's interest in the business for $10,000.00. On January 9, 1996, the debtor filed an amended Schedule C ("Property Claimed as Exempt") in his bankruptcy case, claiming his interest in Zein, Inc., exempt in the amount of $5,697.00. Notice of the amendment was given to the trustee, and no objection was filed within the 30 day period provided in Federal Rule of Bankruptcy Procedure 4003(b). In the absence of a timely objection, the property claimed exempt "is exempt." § 522(1), Bankruptcy Code; Taylor v. Freeland Kronz, 503 U.S. 683, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). The trustee filed a final report and proposed distribution to creditors that did not propose to pay the debtor his $5,697.00 exemption. The debtor objected, and, after a hearing on August 20, 1996, this court entered an order on September 6, 1996, that directed the trustee to submit an amended final report recognizing the debtor's exemption of $5,697.00 from the sales proceeds held by the trustee and providing for the payment of the exempt funds to the debtor.
Under § 522(c), Bankruptcy Code, property exempted by a debtor is not liable for prepetition debts, with certain exceptions. Among these are "a debt of the kind specified in section . . . 523(a)(5) of this title." The debts specified in § 523(a)(5) consist of debts
to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record . . ., or property settlement agreement.
Thus, exempt property is not immune under Federal bankruptcy law from claims for spousal or child support. Nor is it exempt under Virginia law. Va. Code Ann. § 34-5 ("The property exemptions created under this Code shall not be claimed against the following debts: . . . (2) For spousal or child support obligations.") The plaintiffs motion alleges that the debtor owes her over $27,000.00 in child and spousal support awarded her by the Circuit Court of Fairfax County, Virginia. Assuming that such allegations are true, it is clear that such an obligation can be enforced against the debtor's exempt property, and this court can direct the trustee to pay the exempt funds to her. In re Manos, No. 94-10861-AB (Bankr. E.D. Va., Jan. 31, 1995) (Mitchell, J.) (directing trustee to pay debtor's $4,500.00 homestead exemption to debtor's former spouse to satisfy child support award).
The procedural problem, however, is that the plaintiff's motion is filed in the wrong proceeding. This is an adversary proceeding under § 727, Bankruptcy Code, objecting to the debtor's discharge. Very simply, the trustee is not a party to this action. Accordingly, any motion seeking relief against the trustee must be filed in the main bankruptcy case or must be asserted in the form of an adversary complaint to which the trustee and the debtor are made parties. A bankruptcy court, however, is a court of equity, and, as such, this court has the power to prevent substantial rights from being lost simply because the wrong caption was placed on a pleading. Accordingly, while the court cannot grant the present motion because it is filed in the wrong proceeding, it will in order to maintain the status quo enter an order in the main case directing the trustee not to pay the debtor his exemption pending a determination of the plaintiff's claim to those funds.
ORDER
For the foregoing reasons, it is
ORDERED:
1. The Motion for Turnover of Funds is denied without prejudice.
2. A separate order will be entered in the main case directing the trustee not to disburse exempt funds to the debtor pending a determination by this court as to the plaintiff's entitlement to those funds.
3. Any motion or adversary proceeding by the plaintiff asserting an entitlement to the funds claimed exempt by the debtor shall be filed within 20 days of the entry of this order and shall be served on the chapter 7 trustee, debtor, and debtor's counsel and on such other parties as may be required by the Federal Rules of Bankruptcy Procedure.
4. The clerk shall mail a copy of this order to counsel for the plaintiff, counsel for the debtor, and the chapter 7 trustee.