THOMAS J. TUCKER, Bankruptcy Judge.
This case is before the Court on the Chapter 7 Trustee's objection to the Debtor's amended exemptions, and on the Trustee's motion entitled "Trustee's Motion for Turnover of Property of the Estate."
Debtor filed her voluntary Chapter 7 petition in this case on April 20, 2010. Debtor's Schedule B listed one vehicle, a 2005 Mercedes Benz ML350, which Debtor valued at $9,600.00. Debtor's Schedule C claimed federal exemptions in this vehicle, in the total amount of $9,600.00. The exemptions claimed were under 11 U.S.C. §§ 522(d)(2) ($3,450.00) and 522(d)(5) ($6,150.00).
This discussion at the § 341 meeting reinforced the Trustee's belief that the Mercedes had a value substantially greater than the Debtor's claimed $9,600.00 exemption amount. On June 24, 2010, just over three weeks after the § 341 meeting, and with Debtor not having amended her Schedule B or C, the Trustee filed his turnover motion. That motion sought an order requiring Debtor to turn the Mercedes over to the Trustee, so he could sell it and realize its nonexempt value for the bankruptcy estate.
In reaction to the Trustee's turnover motion, Debtor filed amended Schedules B and C, on June 29, 2010.
Debtor's amended Schedule C increased Debtor's claimed exemptions in the Mercedes, to a total that matched the increased value amount, $11,425.00. This was accomplished by Debtor's maintaining her claimed $3,450.00 exemption under 11 U.S.C. § 522(d)(2), and increasing the amount of her claimed exemption under 11 U.S.C. § 522(d)(5) from the original $6,150.00 to $7,975.00.
The evidence establishes that until Debtor filed her amended Schedules B and C, five days after the Trustee filed his turnover motion, neither Debtor nor her counsel disclosed to the Trustee in any way, any of the following: (1) that Debtor had purchased the Mercedes with proceeds of an employer buyout; (2) that Debtor had received any sort of employer buyout; or (3) that Debtor could or would claim an exemption for the Mercedes under § 522(d)(11)(E), based on Debtor's use of employer buyout funds to buy the car.
The Trustee timely filed an objection to the Debtor's amended exemptions.
During the evidentiary hearing, the Trustee abandoned the first two of these arguments, but continued to press the third and fourth arguments.
This Court has subject matter jurisdiction over this bankruptcy case and over these contested matters under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). These contested matters are core proceedings under 28 U.S.C. §§ 157(b)(2)(B) and 157(b)(2)(E).
The Trustee does not dispute that Debtor has a valid exemption in the Mercedes
The Trustee bears the burden of proving, by a preponderance of the evidence, that Debtor's § 522(d)(11)(E) exemption is not "properly claimed." See Fed.R.Bankr.P. 4003(c); In re Opra, 365 B.R. 728, 743 (Bankr.E.D.Mich.2007).
As noted above, the Trustee has abandoned two of the arguments he made initially—that Debtor had not shown that she bought the Mercedes with employer buyout funds as claimed; and that any such buyout funds were not "a payment in compensation of loss of future earnings of the debtor" within the meaning of § 522(d)(11)(E). As to the first of these arguments, the Debtor proved at the evidentiary hearing that she bought the Mercedes with buyout funds,
As the Trustee now concedes, the second of his arguments is foreclosed by a recent decision of the United States Court of Appeals for the Sixth Circuit, Gold v. Lewis (In re Lewis), 387 Fed.Appx. 530, No. 09-1777, 2010 WL 2813328 (6th Cir. July 12, 2010). The Lewis case concerned a Chapter 7 debtor's rights under a Ford employee-buyout program similar to the Chrysler buyout program in this case. In Lewis, the Sixth Circuit held that the Debtor could exempt her buyout rights under § 522(d)(11)(E), because those rights were "a payment in compensation of loss of future earnings" within the unambiguous meaning of § 522(d)(11)(E).
The first of the Trustee's two remaining arguments is that the Mercedes is not "reasonably necessary for the support of the debtor and any dependent of the debtor" within the meaning of § 522(d)(11)(E). This was not an issue in the Lewis case and the Sixth Circuit did not discuss it—in Lewis, the trustee did not dispute that the debtor's employer-buyout rights were reasonably necessary for the debtor's support.
In making this argument, the Trustee concedes that the Debtor does need a vehicle for her support and the support of her two minor daughters. The Trustee acknowledges that Debtor needs a car to get to work, and for other basic transportation needs. But, Trustee argues, Debtor does not need this vehicle, or a vehicle that has the value of the Mercedes, for her support. Trustee argues that the Mercedes is a "luxury vehicle." He argues further that Debtor can use her $11,425 exemption amount, and if necessary, her current employment income, to buy a replacement
The determination of what is "reasonably necessary," in this context,
In re Jackson, 376 B.R. 75, 79-80 (Bankr. D.Conn.2007) (citation omitted), aff'd 394 B.R. 8 (D.Conn.2008), aff'd 593 F.3d 171 (2d Cir.2010).
The Trustee's second argument is that the Debtor's delay in claiming the § 522(d)(11)(E) exemption was prejudicial to creditors. Debtor did not claim this exemption in her initial Schedule C, but rather she waited until almost four weeks after the Trustee raised questions about the value of the Mercedes at the § 341 meeting to first claim this exemption, by filing an amended Schedule C. Moreover, Debtor waited until after the Trustee incurred the expense of preparing and filing his turnover motion before claiming the § 522(d)(11)(E) exemption. Debtor certainly could have acted much sooner to claim this exemption, and had she done so, the Trustee might have avoided the expense of filing a turnover motion.
The legal theory behind the Trustee's "prejudice" argument is supported by case law. The Sixth Circuit has held that a Debtor's right to amend her exemptions under Fed.R.Bankr.P. 1009(a)
Daniels, 270 B.R. at 426 (quoting In re Talmo, 185 B.R. 637, 645 (Bankr.S.D.Fla. 1995)).
Before further considering the Trustee's two grounds for objection, the Court must first consider a threshold issue—namely, whether Debtor's Mercedes is worth more than the total $11,425 exemption amount under §§ 522(d)(2) and 522(d)(5). The Trustee does not dispute this total exemption amount under these Code sections. If the Mercedes is not worth more than $11,425, then it does not matter whether Debtor's additional claim of exemption under § 522(d)(11)(E) is valid or not. In that event, the Trustee's objection to the Debtor's claim of exemption under § 522(d)(11)(E) is moot.
The evidence presented by the parties of the value of the Mercedes is as follows. As of the petition date, the Mercedes was about five years old (being a 2005 model). Two years before she filed bankruptcy, in May 2008, Debtor paid $20,683 at an auction for the vehicle. At that time, however, the vehicle's mileage was only 55,678 miles.
At the evidentiary hearing, Debtor was asked how she came up with the $9,600 value that she listed for the vehicle in her original Schedule B. Debtor testified that she researched the value of the car online, on the Carfax website.
Debtor's testimony at the evidentiary hearing is at odds with her earlier testimony and behavior at the § 341 hearing, as recounted by the Trustee. As noted above, when asked at the § 341 meeting on June 2, 2010 where she got her claimed value of $9,600.00 for the Mercedes, Debtor's response was simply to look at her attorney, who then said that "his file" showed a value of $13,400.00 to $14,900.00, and that he did not know why the value was listed as $9,600.00 in Schedule B. There is no evidence that Debtor contradicted,
The Debtor's original Schedule B valuation of $9,600 is, of course, undermined by the Debtor's later amendment of Schedule B, which valued the vehicle at $11,425. And Debtor's second position on value, taken in her amended Schedule B, is itself rather suspect. Debtor's amended $11,425 value happens to equal exactly the maximum total amount of the exemptions that Debtor can take using §§ 522(d)(2) and 522(d)(5). This seems more than mere coincidence. Rather, Debtor manipulated the Schedule B value of the vehicle to make sure it fit within the maximum exemption amount under §§ 522(d)(2) and 522(d)(5). This, in turn, appears to have been designed by Debtor to try to avoid a dispute with the Trustee over the § 522(d)(11)(E) exemption.
At the evidentiary hearing, however, Debtor presented additional evidence of value that is more credible. First, Debtor presented a printout of an online Kelley Blue Book value for the Mercedes. That document listed the "Blue Book Private Party Value"
Excellent $12,690 Good $11,740 Fair $10,19022
Referring to this exhibit, the Trustee testified on cross examination, rather vaguely, that the condition of Debtor's Mercedes was "good to excellent."
In addition to the Kelley Blue Book evidence, Debtor testified that she obtained an appraisal from a Mercedes dealership in Indiana, where she now lives, on September 13, 2010. The dealer personally inspected the vehicle, and appraised its value as $8,000.
The Trustee did not present any appraisal or any other expert testimony about the value of the Mercedes. He testified, however, that before he conducted the § 341 first meeting of creditors, he reviewed values for the vehicle in two published sources. He reviewed what he described only as "my black book," which showed a "wholesale" value of $12,100 to $14,500, and a "retail" value of $14,750 to $17,225.
The foregoing is all of the evidence presented by the parties of the value of the Mercedes. Based on the evidence presented, the Court finds that the value of the Mercedes was not greater than $11,425, at the time Debtor filed her bankruptcy petition or at any later date. The Trustee did not present any persuasive evidence of a value greater than $11,425. The credible evidence presented by the Debtor, including the $8,000 dealer appraisal, the Kelley Blue Book evidence, and the evidence about the condition of the vehicle contained in the dealer's e-mail, establishes that more probably than not the vehicle is worth less than $11,425, and that it may be worth as little as $8,000.
Thus, the Trustee's objection to Debtor's § 522(d)(11)(E) exemption does not matter—it is moot, and therefore must be overruled.
Debtor's undisputed $11,425 exemption in the Mercedes, under Code §§ 522(d)(2) and 522(d)(5), fully exempts the vehicle. It follows that the Trustee may not sell the vehicle or deprive the Debtor of her full possession and use of the vehicle. Under 11 U.S.C. § 542(a), then, the Trustee is not entitled to an order requiring the Debtor to turn the vehicle over to him. See White v. Brown (In re White), 389 B.R. 693, 699 (9th Cir. BAP 2008)(turnover order "necessarily subsume[s] a determination that the [property] is nonexempt property of the estate").
For the reasons stated in this opinion, the Court will enter an order overruling the Trustee's objection to exemption as moot, and denying the Trustee's turnover motion.
