Jasmine Z. Keller v. Steven R. Johnson ( 2003 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 02-6042 MN
In re: *
*
Steven R. Johnson, *
*
Debtor. *
*
Jasmine Z. Keller, * Appeal from the United States
* Bankruptcy Court for the
Trustee-Appellant, * District of Minnesota
*
v. *
*
Steven R. Johnson, *
*
Debtor-Appellee. *
Submitted: January 15, 2003
Filed: February 4, 2003
Before HILL, SCHERMER and FEDERMAN, Bankruptcy Judges
SCHERMER, Bankruptcy Judge
The Chapter 13 Trustee, Jasmine Z. Keller (“Trustee”), appeals from the
bankruptcy court1 order denying her objection to the Debtor’s homestead exemption
under 11 U.S.C. § 522(d)(1). We have jurisdiction over this appeal from the final
order and judgment of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons
set forth below, we affirm.
ISSUE
The issue on appeal is whether the debtor’s lien in certain real property
occupied by his dependent child and former spouse may be exempted from his
bankruptcy estate pursuant to 11 U.S.C. § 522(d)(1). We conclude that the Debtor
is entitled to the exemption.
BACKGROUND
Steven R. Johnson (“Debtor”) was divorced in 2001. Pursuant to the divorce
decree, all right, title and interest in the marital residence of the Debtor and his wife
(“Real Property”) was awarded to the wife subject to all encumbrances of record and
a lien in favor the Debtor. The Debtor’s former wife and their minor child reside in
the Real Property.
In 2002, the Debtor filed a petition for relief under Chapter 13 of the
Bankruptcy Code. The Debtor asserted an exemption in his interest in the Real
Property under 11 U.S.C. § 522(d)(1) as property that a dependent of the Debtor uses
as a residence. The Trustee objected to the Debtor’s claimed exemption. The Court
overruled the Trustee’s objection. This appeal followed.
1
The Honorable Nancy C. Dreher, United States Bankruptcy Judge for the
District of Minnesota.
2
STANDARD OF REVIEW
The facts are not in dispute. We review the bankruptcy court’s conclusions of
law de novo. Alexander v. Jenson-Carter (In re Alexander), 239 B.R. 911, 913
(B.A.P. 8th Cir. 1999), aff’d 236 F.3d 431 (8th Cir. 2001).
DISCUSSION
Pursuant to 11 U.S.C. § 522(d)(1), a debtor may exempt the “debtor’s
aggregate interest, not to exceed $17,425 in value, in real property or personal
property that the debtor or a dependent of the debtor uses as a residence. . . .” The
parties do not dispute that the Real Property is the residence of the minor child and
that the minor child is a dependent of the Debtor. The Real Property therefore
qualifies as real property that a dependent of the Debtor uses as a residence. The
parties disagree as to whether the Debtor’s lien interest in the Real Property is
exemptible pursuant to 11 U.S.C. § 522(d)(1). The Debtor argues that his lien interest
is an “aggregate interest” in the Real Property. The Trustee asserts that a lien is not
an interest in real property under Minnesota law and therefore the Debtor has no
interest in the Real Property. Rather, a lien is personal property. The Trustee argues
that the minor child does not live in the lien and therefore the lien is not personal
property used by the child as a residence.
We look to the language of 11 U.S.C. § 522(d)(1) to determine whether the
Debtor’s interest in the Real Property qualifies for exemption thereunder. Hartford
Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942,
147 L.Ed.2d 1 (2000); Rousey v. Jacoway (In re Rousey), 283 B.R. 265, 272 (B.A.P.
8th Cir. 2002). According to the plain language of the statute, the Debtor’s “aggregate
interest” in real property that his dependent uses as a residence qualifies for
exemption. The Bankruptcy Code does not define or qualify “aggregate interest.”
It does define “lien” as a “charge against or interest in property to secure payment of
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a debt or performance of an obligation.” 11 U.S.C. § 101(37). We therefore conclude
that a lien is an interest in real property and qualifies as an aggregate interest in the
minor child’s residence under 11 U.S.C. § 522(d)(1).
This result is consistent with the general principle that exemption statutes
should be construed liberally in favor of the debtor. Wallerstedt v. Sosne (In re
Wallerstedt), 930 F.2d 630, 631-32 (8th Cir. 1991); Rousey v. Jacoway (In re Rousey),
283 B.R. 265, 272 (B.A.P. 8th Cir. 2002).
The Trustee argues that state law governs the nature, extent, and type of
interest a Debtor has in property. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914,
59 L.Ed.2d 136 (1979). Under Minnesota law, a lien is not an interest in real
property. Granse & Assocs., Inc. v. Kimm, 529 N.W.2d 6 (Minn. App. 1995), rev.
denied (Minn. Apr. 27, 1995); Mueller v. Buckley (In re Mueller), 215 B.R. 1018,
1023 n.8 (B.A.P. 8th Cir. 1998), citing Oldewurtel v. Redding, 421 N.W.2d 722, 726
(Minn.1988); Gau v. Hyland (In re Gau), 230 Minn. 235, 240, 41 N.W.2d 444, 448
(1950); Bidwell v. Webb, 10 Minn. 59, 62 (Minn.1865); Granse & Assocs., supra; and
State Bank v. Schwenk, 395 N.W.2d 371, 375 (Minn.Ct.App.1986), rev. denied
(Minn. Nov. 26, 1986). Therefore the Debtor has no interest in the Real Property.
Under the Trustee’s theory, the Debtor’s lien is personal property. Personal property
only qualifies for the exemption if the minor child resides in the personal property.
A person cannot reside in a lien and therefore the lien does not qualify under the
exemption.
Generally we look to state law for guidance to determine property interests.
If the Debtor had elected Minnesota exemptions under 11 U.S.C. § 522(b), we would
agree with the Trustee that Minnesota law governs the property interest and that his
lien does not qualify for exemption under Minnesota’s homestead exemption statute,
Minn. Stat. Ann. §§ 510.01 and 510.02. However, the State of Minnesota gave its
citizens the right to choose either federal or state exemptions when filing bankruptcy.
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Where the Debtor elects the federal exemptions rather than the state exemptions,
federal rules of statutory interpretation control. We look within the federal statute,
including the definition of a lien in 11 U.S.C. § 101(37), for guidance in interpreting
the statute. Where, as here, the federal statute is clear on its face, we have no need
to look to state law.
We acknowledge that the result under the federal exemption differs from the
result under the state exemption. In giving its citizens the choice of either state or
federal exemptions, the Minnesota legislature implicitly acknowledged that the result
might differ depending on which statutory exemption scheme a debtor elects.2
CONCLUSION
The Debtor is entitled to an exemption in the Real Property pursuant to
11 U.S.C. § 522(d)(1). Accordingly, we AFFIRM.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
EIGHTH CIRCUIT
2
For example, the dollar limit for a nonagricultural homestead under the
Minnesota Statute is $200,000, whereas the dollar limit under the federal statute is
$17,425. Compare Minn. Stat. Ann. § 510.02 with 11 U.S.C. § 522(d)(1). Where
a debtor has an interest with a value greater than $17,425, the amount the debtor
could exempt would vary under the two statutes. In such a scenario, presumably a
debtor would elect the federal homestead exemption only if the state homestead
exemption was not otherwise available.
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