Opinion ID: 679563
Heading Depth: 2
Heading Rank: 2

Heading: Rezoning of the land

Text: 7 Lloyd argues that the trustee did not have the authority to have her land rezoned and that Lloyd's lifestyle required that her land remain zoned as exclusively agricultural. Her first objection is to the bankruptcy court's refusal to grant her status as a farmer. The court found that Lloyd was primarily employed as a psychotherapist and [was] not in the business of boarding horses. R. at 14. This court reviews the bankruptcy court's findings of fact, here the determination that Lloyd was not a farmer, for clear error. Bankruptcy Rule 8013; In re Yonikus, 974 F.2d 901, 903 (7th Cir.1992). Lloyd contends that she has always considered herself to be a farmer. The record, however, indicates that, although she may have taken crops off the land in earlier years, at the time she filed her petition, she did not derive a substantial part of her income from farming. Other than through the sale of a mare and by participation in the Conservation Reserve Program, Lloyd had not been engaged in farming activities. The bankruptcy court's finding is not clearly erroneous. 8 Having found that Lloyd was not a farmer, the bankruptcy court proceeded to determine how much land to allow for Lloyd's homestead exemption. See 11 U.S.C. Sec. 522(b)(2); Wis.Stat. Sec. 815.20. In that connection, Wisconsin's homestead exemption statute provides: 9 The word homestead means the dwelling and so much of the land surrounding it as is reasonably necessary for use of the dwelling as a home, but not less than one-fourth acre (if available) and not exceeding forty acres. 10 Wis.Stat. Sec. 990.01(13). The court then determined that, because Lloyd was not a farmer, three acres was a reasonable amount upon which she could construct a residence and keep her two horses. Lloyd's only objection to the amount of land allocated is with respect to the limitations this allocation places on her farming activities. The bankruptcy court's finding is not clearly erroneous. 11 After determining that Lloyd's homestead exemption should consist of three acres of land, the court learned that Lloyd would not be permitted under the zoning laws to construct a residence on three acres of exclusively agricultural land. The court directed the trustee to obtain a zoning change in order to bring her plans for a homestead into compliance with local law and regulations. Without the change Lloyd would not have been permitted to build a residence; this would defeat the purpose of the homestead exemption--to provide the debtor with a home. The piece of property designated for Lloyd's homestead exemption had to meet the specifications permitting her to reside on it. 12 Lloyd's primary objection to the court's disposition of the case is that the zoning designation, residential, unduly limits her in the use of the land. She asserts that the change in zoning has prevented her from engaging in farm-like activities. But Lloyd does not have an entitlement to carry on farm-like activities on her homestead-exempt property. The issue is the amount of land reasonably necessary for a home, not whether Lloyd should be enabled to carry on farming activities on her land. Farm Credit Bank v. Gibson, 155 Wis.2d 325, 455 N.W.2d 674 (Ct.App.1990) (one acre reasonably necessary for homestead of construction worker even though he worked a portion of the land). Once the court determined that Lloyd was not a farmer, it was not required to consider the extent to which she would be able to continue farming activity. 13 The amicus contends that a determination of Lloyd's status as a farmer is not dispositive of the question concerning the amount of land to which she was entitled. The amicus argues that the bankruptcy court and the trustee did not have the authority to have the exempt property rezoned, and because thirty-five acres was necessary to build a home on the property as zoned, Lloyd should have received thirty-five acres. This solution would have been in compliance with the Wisconsin definition of homestead, that allows not less than 0.25 acre ... and not exceeding 40 acres. Wis.Stat. Sec. 990.01(13). In other words, the amicus contends that the court could have granted a homestead exemption that left the zoning intact. Then, under Wisconsin law, the court should have given Lloyd thirty-five acres. 14 The Wisconsin homestead statute, expressing a strong public policy, is liberally construed in favor of debtors. In the Matter of Neis, 723 F.2d 584, 587 (7th Cir.1983). For example, in In re Mann, 82 B.R. 981 (Bankr.W.D.Wis.1986), the bankruptcy court allowed the debtors to claim two parcels of land as a homestead exemption even though one had been originally purchased for business reasons. The court concluded that the debtors had intended to use both parcels as a homestead. Id. at 984. But in this case, Lloyd is not being deprived of her entitlement. The bankruptcy court balanced the need to comply with Wisconsin's homestead exemption statute against the requirement to make the estate available to creditors, and determined that three acres was sufficient. In order to effectively grant Lloyd the exemption, the court sought to have the property brought into compliance with local law permitting the construction of a home. 15 Other bankruptcy courts have addressed the problem of exemptions being in tension with state law or local law. Where a homestead exemption is a state constitutional right, that right may not be denied or frustrated by a zoning change brought about by local government. In re Webb, 121 B.R. 827 (Bankr.E.D.Ark.1990) (court allowed homestead exemption although property claimed was zoned as commercial); In re Dudeney, 159 B.R. 1003 (Bankr.S.D.Fla.1993) (in allowing debtor to declare two contiguous lots as a homestead, court found that zoning laws are not determinative of the homestead exemption). See In re Makarewicz, 130 B.R. 620 (Bankr.S.D.Fla.1991) (debtor rented out portions of property that was zoned as a single family residence with no possibility of legally severing property and whole property was allowed as homestead); In re Kuver, 70 B.R. 190 (Bankr.S.D.Fla.1986) (creating new divisibility test in allowing entire duplex to be exempt where duplex was divisible but not lawfully marketable under zoning laws). On the other hand, where state law limits the size or value of a homestead exemption, bankruptcy courts have been unwilling to increase the size of the homestead in order, ostensibly, to comply with local zoning laws. In re Englander, 156 B.R. 862 (Bankr.M.D.Fla.1992) (zoning laws prevented the subdivision and sale of the non-exempt land and rather than allow larger exemption, court ordered sale of property and apportionment of proceeds). 16 The trustee is the representative of the estate, 11 U.S.C. Sec. 323, and is charged with liquidating the property of the estate as expeditiously as is compatible with the best interests of the parties in interest. 11 U.S.C. Sec. 704. The bankruptcy court's equitable powers, found in 11 U.S.C. Sec. 105, enable the court to issue any order, process, or judgment that is necessary or appropriate to carry out provisions of the Code. 11 U.S.C. Sec. 105(a). These powers may be exercised only within the confines of the Bankruptcy Code. Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988). The bankruptcy court does not have free-floating discretion, to create rights outside the Code, In the Matter of Chicago, Milwaukee, St. Paul and Pacific R.R. Co., 791 F.2d 524, 528 (7th Cir.1986), but the court may exercise its equitable powers in a manner consistent with the Code. In re SPM Mfg. Corp., 984 F.2d 1305, 1311 (1st Cir.1993). 17 The bankruptcy court sought to grant Lloyd a homestead exemption. It determined an appropriate amount of land to which she was entitled. This is a finding that we will not reverse absent clear error. It then exercised its equitable powers to ensure that the exemption was usable for the purpose of constructing a residence. The bankruptcy court here could have ordered the sale of the entire parcel and awarded Lloyd certain proceeds of the sale, In re Wierschem, 152 B.R. 345 (Bankr.M.D.Fla.1993); Englander, 156 B.R. 862; O'Brien v. Heggen, 705 F.2d 1001 (8th Cir.1983), but instead it allowed her to stay on the land. By authorizing a relatively simple change in the zoning, the bankruptcy court could grant Lloyd an adequate homestead and at the same time give due consideration to the interests of the creditors by exempting only enough property to meet Lloyd's entitlement. The court carefully adhered to the prescriptions of the Code and did not overstep the bounds of its very considerable equitable powers. Of course, if the rezoning itself were improper under state or local law, the zoning decision of the Township could have been appealed. 18 AFFIRMED.