Court Opinion

ID: 218829
Source: CourtListenerOpinion
Date Created: 2011-06-15 13:42:15+00
Date Added: 2024-06-11T12:36:53.094122
License: Public Domain

ELECTRONIC CITATION: 2011 FED App. 0004P (6th Cir.)
                              File Name: 11b0004p.06

            BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: JAMES MARK WENGERD;                          )
       CHERYL SUE WENGERD,                          )
                                                    )       No. 10-8080
                  Debtors.                          )
_____________________________________               )

                        Appeal from the United States Bankruptcy Court
                               for the Northern District of Ohio
                                      Case No. 09-62720

                                      Argued: May 4, 2011

                                Decided and Filed: June 15, 2011

       Before: BOSWELL, FULTON, and McIVOR, Bankruptcy Appellate Panel Judges.
                             ____________________

                                           COUNSEL

ARGUED: Michael V. Demczyk, McNAMARA, DEMCZYK & DeHAVEN CO., L.P.A.,
Uniontown, Ohio, for Appellants. Lisa M. Barbacci, Medina, Ohio, for Appellee. ON BRIEF:
Michael V. Demczyk, McNAMARA, DEMCZYK & DeHAVEN CO., L.P.A., Uniontown, Ohio,
for Appellants. Lisa M. Barbacci, Medina, Ohio, for Appellee.
                                    ____________________

                                          OPINION
                                    ____________________

       G. HARVEY BOSWELL, Bankruptcy Appellate Panel Judge. James Mark Wengerd and
Cheryl Sue Wengerd (“Debtors”) appeal an order of the bankruptcy court sustaining the Trustee’s
objection to their homestead exemption and granting the Trustee’s motion for turnover of proceeds
from the sale of the Debtors’ residence.
                                    I. ISSUE ON APPEAL

       The issue raised by this appeal is whether the bankruptcy court erred in sustaining the
Trustee’s objection to the Debtors’ homestead exemption and granting the Trustee’s motion for
turnover of proceeds from the sale of the Debtors’ residence.

                    II. JURISDICTION AND STANDARD OF REVIEW

       We have jurisdiction to decide this appeal. The United States District Court for the Northern
District of Ohio has authorized appeals to the Panel, and neither party timely elected to have this
appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy
court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). An order on an objection to a
debtor’s claim of exemption is final for purposes of appeal. See Menninger v. Schramm (In re
Schramm), 431 B.R. 397, 399 (B.A.P. 6th Cir. 2010) (citing Wicheff v. Baumgart (In re Wicheff),
215 B.R. 839, 840 (B.A.P. 6th Cir. 1998)). The bankruptcy court’s order granting the Trustee’s
motion for turnover is also a final, appealable order. Bailey v. Suhar (In re Bailey), 380 B.R. 486,
488 (B.A.P. 6th Cir. 2008).

       The bankruptcy court’s conclusions of law are reviewed de novo. Darrohn v. Hildebrand
(In re Darrohn), 615 F.3d 470, 474 (6th Cir. 2010). The bankruptcy court’s application or
interpretation of state law is a conclusion of law. In re Schramm, 431 B.R. at 399. “Interpretation
of a state’s exemption statute involves a question of law and is reviewed de novo.” Id. “Under a de
novo standard of review, the reviewing court decides an issue independently of, and without
deference to, the trial court’s determination.” Menninger v. Accredited Home Lenders (In re
Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007). Essentially, the reviewing court decides the
issue “as if it had not been heard before.” Mktg. & Creative Solutions, Inc. v. Scripps Howard
Broad. Co. (In re Mktg. & Creative Solutions, Inc.), 338 B.R. 300, 302 (B.A.P. 6th Cir. 2006)
(citation omitted). “No deference is given to the trial court’s conclusions of law.” Id. (citations
omitted).

                                          III.   FACTS

       On July 3, 2009, James Mark Wengerd and Cheryl Sue Wengerd (“Debtors”) filed a
voluntary petition for relief under chapter 7 of the Bankruptcy Code. At that time, the Debtors

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resided at 14654 Duquette Ave., N.E., Hartville, Ohio 44632 in a home that they had owned since
March 14, 1995. The fair market value of the home was listed on Schedule A as $205,000.00 with
secured debt of $164,978.92. Pursuant to Ohio Revised Code § 2329.66(A)(1), the Debtors claimed
a homestead exemption in the amount of $40,400.00.

        On May 27, 2009, prior to filing their petition for relief, the Debtors entered into a contract
to sell their home for $205,000. They did not disclose the pending sale of their home in their
petition, nor did they list the contract to sell on Schedule E, which requires the listing of executory
contracts. On their Chapter 7 Individual Debtor’s Statement of Intention, they stated that they
intended to retain the property. However, James Wengerd testified at deposition that, assuming all
went according to plan with the sale of their home, at the time they filed their petition for relief they
intended to move to another residence.

        On July 7, 2009, four days after they filed their petition, the sale of the home closed. With
the proceeds of the sale, the Debtors paid their first and second mortgages. They received the
remaining sum of $34,874.47 on July 8, 2009. At the meeting of creditors, the Debtors testified that
they were in possession of the cash from the sale of their home and were using a portion of it for
living expenses.

        On July 9, 2009, the Debtors executed a contract to move to an apartment in Hesston, Kansas
where James Wengerd was enrolled in divinity school. On July 15, 2009, the Debtors arrived and
moved into their apartment in Hesston, Kansas. They did not use the funds they received from the
sale of their home in Ohio to purchase another home, nor do they intend to do so.

        On October 19, 2009, the chapter 7 trustee, Lisa M. Barbacci (the “Trustee”), filed an
Objection to Homestead Exemption and Motion for Turnover of Property in which she moved for
an order for turnover of the proceeds from the sale of the residence. The Trustee argued that the
Debtors could not claim a homestead exemption because they did not intend to reside at the Ohio
home post-petition.

        Following a status conference at which the parties agreed to submit briefs and allow the court
to decide the matter without oral argument, the bankruptcy court issued an opinion and order
sustaining the Trustee’s objection to the Debtors’ homestead exemption and granting the Trustee’s

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motion to turn over the proceeds from the sale of the Debtors’ home. The court found that a “debtor
cannot claim a homestead exemption if, through his pre-petition behavior, he shows a clear intent
to abandon the property immediately post-petition.” (Bankr. Ct. Docket #76, Memorandum of
Opinion, Oct. 14, 2010, at 3.) Based upon this finding, the court then held that these Debtors could
not claim a homestead exemption because they had shown a clear intent to abandon their Ohio home
by entering into a sales contract pre-petition and ultimately selling the property three days after filing
their petition for relief.

        The Debtors’ timely appeal followed.

                                             IV.    DISCUSSION

        The Debtors’ bankruptcy estate consists of all of their legal and equitable interests in all
property. See 11 U.S.C. § 541(a)(1). The Bankruptcy Code permits the Debtors to exempt certain
enumerated property from the estate. See 11 U.S.C. § 522. Pursuant to 11 U.S.C. § 522(b), Ohio
has elected to opt out of the federal exemptions and create its own exemptions. See Ohio Rev. Code
§ 2329.66. The Trustee bears the burden of establishing by a preponderance of the evidence that the
exemption claimed should not be allowed. Fed. R. Bankr. P. 4003(c); Baumgart v. Alam (In re
Alam), 359 B.R. 142, 147 (B.A.P. 6th Cir. 2006) (citation omitted). In order to effectuate the goals
of providing honest debtors a fresh start and affording debtors life’s basic necessities, Ohio courts
follow the rule that exemption statutes are to be construed liberally in favor of the debtors, and that
any doubt in interpretation should be in favor of granting the exemption. See In re Alam, 359 B.R.
at 147-48; Daugherty v. Cent. Trust Co. of Ne. Ohio, N.A., 504 N.E.2d 1100, 1104 (Ohio 1986).

        The exemption at issue in this appeal is Ohio Rev. Code § 2329.66(A)(1), which provides
in pertinent part:

                 (A) Every person who is domiciled in this state may hold property
                 exempt from execution, garnishment, attachment, or sale to satisfy a
                 judgment or order, as follows:
                         (1) . . .
                                     (b) . . . [T]he person’s interest, not to
                                     exceed twenty thousand two hundred
                                     dollars, in one parcel or item of real or
                                     personal property that the person or a

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                                dependent of the person uses as a
                                residence.

        The Debtors argue that the bankruptcy court erred in sustaining the Trustee’s objection to
their homestead exemption because they were using the Ohio home as their principal residence on
the date they filed their petition for relief. They assert that a requirement to intend to remain at the
property in order to claim the exemption is contrary to the policy of liberally construing exemption
statutes in favor of the debtor, and contrary to the plain meaning of the exemption statute which does
not address the intent of debtors.

        The Trustee, however, asserts that for over 100 years Ohio courts have recognized the intent
to occupy a homestead as the necessary element in establishing an allowable homestead exemption.
Therefore, the mere fact that the Debtors resided in the Ohio home on the date of filing is insufficient
to claim the homestead exemption. The Trustee argues that the Debtors were merely temporary
occupants of the Ohio home because they had signed a contract to sell and, because they had no
intention to make the Ohio home their permanent residence, they are not entitled to a homestead
exemption. In support of her position, she cites to Ohio case law allowing a debtor to claim the
homestead exemption where he has temporarily abandoned the property, but lacks the intent to
abandon it permanently. See, e.g., Jackson v. Reid, 32 Ohio St. 443 (Ohio 1877) (despite debtor’s
temporary absence from homestead, exemption was allowed because evidence showed no intention
to permanently abandon); Wetz v. Beard, 12 Ohio St. 431 (Ohio 1861) (exemption allowed where
temporary removal without intent to abandon homestead); Meadow Wind Health Care Ctr. v.
McInnes, No. 1999CA00338, 2000 WL 1055938 (Ohio Ct. App. July 24, 2000) (temporary removal
with no intent to abandon insufficient to deny exemption; for exemption purposes, abandonment
consists of both actually leaving and intent to abandon); In re Cameron, 25 B.R. 119 (Bankr. N.D.
Ohio 1982) (absence from residence at time of filing is not always sufficient, in itself, to extinguish
right to use homestead exemption; intent to return may preserve exemption).

        The cases cited by the Trustee are inapposite as they do not address the issue before the
Panel-whether a debtor who has used, and is currently using, a home for a principal residence must
also intend to occupy the residence in the future to claim a homestead exemption. In fact, no Ohio
state court has addressed this issue. The Panel therefore must anticipate how the Ohio Supreme
Court would resolve the issue. In this regard, the Panel notes that several bankruptcy courts

                                                  -5-
interpreting Ohio law have addressed the issue, albeit with differing results. Compare In re Cope,
80 B.R. 426, 428 (Bankr. N.D. Ohio 1987) (holding debtor entitled to a homestead exemption
because residence continues until property is abandoned; intent to abandon at some future time does
not end debtor’s use of property as residence), with In re Garland, 98 B.R. 767, 770 (Bankr. S.D.
Ohio 1989), and In re Pagan, 66 B.R. 196 (Bankr. N.D. Ohio 1986) (both holding debtor not entitled
to homestead exemption because “residence” requires an intention to continue living at the property).

       In Cope, the debtor filed a petition for relief and claimed the Ohio homestead exemption in
a house he owned and had resided in for a number of years. At the time of that filing, the home was
used as the debtor’s residence. However, three days after filing his petition, the debtor moved from
and abandoned the property. Based upon the debtor’s abandonment of the property three days after
filing, the trustee objected to the claimed exemption. The bankruptcy court denied the trustee’s
objection and allowed the exemption because the debtor was using the property as a residence at the
time he filed his petition and claimed the exemption. In re Cope, 80 B.R. at 428.

       In reaching its conclusion, the Cope court first explained that “[c]ase law strongly supports
the proposition that a debtor’s right to exemptions is determined as of the date the Petition is filed.”
Id. at 427 (citing, inter alia, White v. Stump, 266 U.S. 310, 45 S. Ct. 103 (1924)). The court then
went on to explain that once a debtor establishes a residence, it continues until the property is
abandoned, and abandonment is not established by a mere intent to leave the property at some time
in the future. Rather, “abandonment” consists of both an intent to abandon and actually leaving the
property. Id. at 428. According to the Cope court, the language of the exemption statute, “uses as
a residence,” also supports allowing a debtor’s exemption despite an intent to abandon in the future.
“When this language is coupled with the fact that a debtor’s right to exemptions is determined as of
the date the Petition is filed, the Court must find that an intent to abandon the property in the future
does not defeat the exemption.” Id.

       In In re Pagan, 66 B.R. 196, the bankruptcy court reached the opposite conclusion. In
Pagan, the debtor claiming a homestead exemption was living in the residence on the date of filing
his bankruptcy petition, but had procured another residence prior to filing and exhibited a specific
intention to vacate the premises promptly after filing, and did in fact vacate the residence. The court
concluded that a debtor who does not intend to hold the purportedly exempt property as his residence
in the future is not a person who falls within the category of persons for whom the exemption statute

                                                  -6-
was designed to benefit. In re Pagan, 66 B.R. at 199-200. Therefore, a debtor, who while living in
the residence at the time of filing, exhibits an intent to vacate and does vacate shortly after filing, is
not entitled to claim a homestead exemption under Ohio Rev. Code § 2329.66(A)(1). Id.

        The Pagan court based its holding upon the historical purpose of the exemption to provide
a home to families of insolvent debtors and cases interpreting prior homestead exemption statutes.
See, e.g., Stewart v. Boyd, 6 Ohio Dec. Reprint 937, 1880 WL 5769 (Ohio Com. Pl. 1880) (debtor
entitled to homestead exemption where he intends to reinvest proceeds of sale in a new residence);
McComb v. Thompson, 42 Ohio St. 139 (Ohio 1884) (homestead exemption disallowed where debtor
sold exempt property and exhibited no intention to use proceeds to purchase another homestead);
Jackson v. Reid, 32 Ohio St. 443 (Ohio 1877) (debtor entitled to surplus proceeds of sale where
property sold to satisfy mortgage lien while debtor indicated intent to hold premises as homestead
if he could). Based upon those cases, the court concluded that “the current statute was enacted for
the protection of a debtor who has built equity in a home and who, without the benefit derived from
the exemption, would be without adequate means of maintaining a home for himself.” In re Pagan,
66 B.R. at 199.

        The bankruptcy court in Garland reached a similar conclusion. There, the debtor’s wife and
children resided in the family home on the date the debtor filed his petition for relief and claimed
the homestead exemption. However, the property was listed for sale prior to the petition date, a sale
contract was executed shortly after the filing date, and the sale was finalized approximately two
months later. While acknowledging that, on its face, the exemption statute does not require specific
intent to remain in the residence, the bankruptcy court was convinced by the historical origin of the
exemption and judicial interpretations of the statute, including the Pagan decision, that such specific
intent to remain is indeed required. In re Garland, 98 B.R. at 769-70.

        In the appeal before the Panel, the bankruptcy court also relied upon Ohio case law decided
under previous exemption statutes where the subjective intent of the debtor was found important.
See McComb v. Thompson, 42 Ohio St. 139 (Ohio 1884); Stewart v. Boyd, 6 Ohio Dec. Reprint 973
(Ohio Com. Pl. 1880). The court also noted that the “majority” of cases from other states require
an intent to stay at the property as a requirement to claiming a homestead exemption. See, e.g., In
re Cole, 185 B.R. 95, 97 (Bankr. D. Me. 1995) (applying Maine statute); In re Crippen, 36 B.R. 7,
9 (Bankr. E.D. Mo. 1983) (applying Missouri statute); Ray v. Metzger, 165 S.W. 2d 207, 210 (Tex.

                                                   -7-
Civ. App. 1942) (applying Texas statute).1 The rationale behind the majority rule, as stated by the
bankruptcy court, is that “because the purpose of the homestead exemption is to keep a roof over the
heads of the debtor’s family, the exemption statute ought not to apply if the debtor does not actually
intend to use his property for shelter.” (Bankr. Ct. Docket #76, Memorandum of Opinion, Oct. 14,
2010, at 3.) The bankruptcy court agreed with this rationale and found that a “debtor cannot claim
a homestead exemption if, through his pre-petition behavior, he shows a clear intent to abandon the
property immediately post-petition.” (Bankr. Ct. Docket #76, Memorandum of Opinion, October
14, 2010, at 3.) Based upon this finding, the court held that the Debtors in the instant case could not
claim a homestead exemption because they had shown a clear intent to abandon their Ohio home by
entering into a sales contract pre-petition and ultimately selling the property four days after filing
their petition for relief.

        The Panel disagrees with the conclusion of the bankruptcy court in the instant appeal and
chooses to follow the well-reasoned analysis of the bankruptcy court in Cope. The Debtors’ intent
to abandon the Ohio home post-petition is irrelevant and does not defeat the establishment of an
allowable homestead exemption under Ohio law. On the date they filed their petition for relief, the
Debtors were using the Ohio home as their principal residence, and therefore, they are entitled to the
homestead exemption as provided by Ohio Rev. Code § 2329.66(A)(1)(b). As the Cope court stated,
it is a well-established principle that exemptions are determined on the bankruptcy filing date. White
v. Stump, 266 U.S. 310, 45 S. Ct. 103 (1924). In addressing a homestead exemption issue under
Idaho law, the White court stated:

                 When the law speaks of property which is exempt and of rights to
                 exemptions, it of course refers to some point of time. In our opinion
                 this point of time is the one as of which the general estate passes out
                 of the bankrupt’s control, and with respect to which the status and
                 rights of the bankrupt, the creditors and the trustee in other particulars
                 are fixed.

        1
          None of the cases cited by the bankruptcy court involve the issue. In fact, in each of these
cases, the property at issue was undeveloped land on which the debtors did not reside. The question
was whether their intent to make the property their residence in the future was sufficient to claim
their respective state’s homestead exemptions.

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266 U.S. at 313. While White v. Stump was decided under the Bankruptcy Act, the principle that a
debtor’s exemptions are determined as of the filing date remains good law under the Bankruptcy
Code. Owen v. Owen, 500 U.S. 305, 314 n. 6, 111 S. Ct. 1833, 1838 n. 6 (1991) (exempt property
is determined “on the date of the filing of the petition”); Armstrong v. Peterson (In re Peterson), 897
F.2d 935, 937 (8th Cir. 1990) (“[W]e hold today that only the facts existing on the date of filing are
relevant to determining whether a debtor qualifies for a claimed exemption.”); Klein v. Chappell (In
re Chappell), 373 B.R. 73, 77 (B.A.P. 9th Cir. 2007) (“critical date for determining exemption rights
is the petition date;” “exemptions . . . are determined on the date of bankruptcy and without reference
to subsequent changes in the character or value of the exempt property”), aff’d sub nom. Gebhart v.
Gaughan (In re Gebhart), 621 F.3d 1206 (9th Cir. 2010).

        In fact, the Sixth Circuit Court of Appeals long ago recognized that a debtor’s right to a
homestead exemption under Ohio law is determined as of the date of the bankruptcy. In re Stitt, 252
F. 1, at *6 (6th Cir. 1918) (“bankrupt’s status at time of adjudication governs”). Additionally, Ohio
cases interpreting earlier versions of the exemption statute also recognized that the right to a
homestead exemption in Ohio is indisputable if the debtor is living on the property at the time the
exemption is claimed. In Stewart v. Boyd, and Jackson v. Reid, the Supreme Court of Ohio and the
Court of Common Pleas explained:

                If he has voluntarily abandoned [his residence] before claiming it as
                exempt, his right to claim it is gone. He cannot have two homesteads.
                If he leaves his homestead and moves elsewhere, making the latter
                residence his home, his right to the former is gone.
                What the homestead is, is a question of fact. If the debtor be living
                upon the premises at the time the exemption is claimed, his right
                cannot be disputed . . . .

Stewart v. Boyd, 6 Ohio Dec. Reprint 973, at *3 (Ohio Com. Pl. 1880) (emphasis added); Jackson
v. Reid, 32 Ohio St. 443, at 447 (Ohio 1877).2

        2
          In McComb v. Thompson, 42 Ohio St. 139 (Ohio 1884), upon which Pagan, Garland, and
the bankruptcy court in this case rely for the principle that the Debtors’ intent is relevant, the debtor
sold his home before a judgment lien creditor attempted to satisfy his judgment. The debtor had only
the proceeds of the sale at the time he claimed the exemption. Therefore, the question became
whether he could claim the exemption in the proceeds. The court found that the exemption did not
apply because the debtor lacked intent to purchase another property. The Debtors here were still

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        While the Debtors’ home was subject to an executory contract to sell on the day they filed
their petition for relief in this case, the Debtors owned the home and used it as their residence. That
is all the Ohio homestead exemption requires--that the debtor use the property as a residence. That
determination must be made on the date the petition for relief is filed. As the Debtors argue, the
plain language of the exemption statute requires no intent to remain; the statute simply states that
the exemption applies to property that a person “uses as a residence.” “When this language is
coupled with the fact that a debtor’s right to exemptions is determined as of the date the Petition is
filed, [it follows] that an intent to abandon the property in the future does not defeat the exemption.”
In re Cope, 80 B.R. at 428.

         In the cases cited by the Trustee in support of her position, the courts concluded that the
intent of a debtor to occupy a residence was a prerequisite to an allowable homestead exemption.
However, those cases are inapplicable where the debtor is residing on the property and using it as
a residence at the time the exemption is claimed. The issue of intent arose in the cases cited by the
Trustee because the debtors were, at least temporarily, not residing on the claimed property. For
purposes of the homestead exemption, however, abandonment of property consists of both an intent
to abandon and actually leaving the premises. Meadow Wind Health Care Ctr. v. McInnes, No.
1999CA00338, 2000 WL 1055938 (Ohio Ct. App. 2000). Coupling the principle that exemptions
are determined as of the date the petition for relief is filed with this definition of abandonment, in
order to have abandoned one’s property for homestead exemption purposes with respect to a
bankruptcy case, one must have both intended to abandon and physically abandoned the property
before filing their petition for relief.

        On the date the Debtors filed their petition, they were using the residence in question.
Without both intending to abandon the residence and physically abandoning the residence, the
Debtors’ occupancy of the home continued their residence status when the petition was filed entitling
them to claim the homestead exemption in the aggregate amount of $40,400. This conclusion
conforms with the rule that Ohio exemption statutes are to be construed liberally in favor of the
debtor, and that any doubt in interpretation should be in favor of granting the exemption, Baumgart
v. Alam (In re Alam), 359 B.R. 142, 147-48 (B.A.P. 6th Cir. 2006) (citing, inter alia, Daugherty v.

using the property as their residence when they filed their petition and claimed the exemption.

                                                  -10-
Cent. Trust Co. of Ne. Ohio, N.A., 504 N.E.2d at 1104), as well as the “cardinal rule” of statutory
construction that a “court must look to the language of the statute itself to determine legislative
intent. If that inquiry reveals that the statute conveys a meaning which is clear, unequivocal and
definite, at that point the interpretative effort is at an end, and the statute must be applied
accordingly.” Provident Bank v. Wood, 304 N.E.2d 378, 381 (Ohio 1978) (citations omitted). In
construing statutes, it is the duty of the courts to give effect to the words used, not to delete words
used, or to insert words not used. State v. Horner, 935 N.E.2d 26, 31 (Ohio 2010) (citing Columbus-
Suburban Coach Lines, Inc. v. Pub. Utils. Comm’n of Ohio, 254 N.E. 8, 9 (Ohio 1969)). Ohio Rev.
Code § 2329.66(A)(1) simply does not permit inquiry into the Debtors intent to continue to use their
property as their residence. To allow such inquiry is to insert words into the statute which the Ohio
legislature did not use. As the Ohio Supreme Court has held, “[W]e are not free, in interpreting this
statute, simply to rewrite it on grounds that we are thereby improving the law.” Daugherty, 504 N.E.
2d at 1105.

                                       V. CONCLUSION

       Exemptions are determined on the date a bankruptcy petition is filed. The Debtors were
using their property as their principal residence on the date they filed their petition. Therefore, the
Debtors’ intention to leave their property post-petition is irrelevant and does not defeat their claim
to the homestead exemption provided by Ohio Rev. Code § 2329.66(A)(1). The order of the
bankruptcy court sustaining the Trustee’s objection to the Debtors’ homestead exemption and
granting the Trustee’s motion for turnover of proceeds from the sale of the Debtors’ residence must,
therefore, be reversed and remanded for proceedings consistent with this opinion.

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