Anderson v. Kaler (In Re Anderson)

Filed 8/22/19 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2019 ND 217
In re: Michael Lee Anderson, Debtor
----------
Michael Lee Anderson, Plaintiff
v.
Kip M. Kaler, Bankruptcy Trustee, Defendant
No. 20180424
Certified question from the United States Bankruptcy Court for the District of
North Dakota, the Honorable Shon Hastings, Bankruptcy Judge.
CERTIFIED QUESTION ANSWERED.
Opinion of the Court by Crothers, Justice.
Alan Sorensen, Winona, MN, (argued) and Sara E. Diaz, Fargo, ND
(appeared), for debtor and plaintiff.
Patrick J. Sinner (argued) and Kip M. Kaler (on brief), Fargo, ND, for
defendant.
In re Anderson
No. 20180424
Crothers, Justice.
[¶1] The United States Bankruptcy Court for the District of North Dakota asks
whether a married debtor is entitled to an exemption up to $100,000 for his undivided
one-half interest in homestead property jointly owned with a nondebtor. We answer
the certified question “yes.”
I
A
[¶2] The parties stipulated to the Bankruptcy Court’s factual summary:
“Debtor Michael Lee Anderson petitioned for bankruptcy relief
on June 19, 2018. On the same day, he filed a schedule of exempt
assets, claiming an $81,600 exemption in the following described real
property under sections 28-22-02(7), 47-18-01 and 28-22-02(10) of the
North Dakota Century Code:
Lot 10, Block 2 of Meidinger Second Addition to the
City of Jamestown, County of Stutsman, State of North
Dakota. The street address of this property is 1626 16th
Street Southwest, Jamestown, North Dakota.
Debtor and his nondebtor spouse reside at the real property described
above and claim it as their homestead. They own the property as joint
tenants.
“On September 13, 2018, the Bankruptcy Trustee filed an
objection to the homestead exemption [the] Debtor claimed. He asserts
that Debtor improperly deducted the $100,000 homestead exemption
from Debtor’s one-half interest in the property. He argues that Debtor
must deduct the $100,000 homestead exemption from the full value of
the property less secured liens, resulting in $63,200 in equity. The
Trustee claims: ‘Half that amount, or $31,600, would remain as
property of the debtor’s wife and the balance would be nonexempt
property of the bankruptcy estate.’ Debtor filed a response arguing that
his $81,600 homestead exemption claim is proper.
“The Bankruptcy Trustee and Debtor agree that the value of the
real property is $167,200. The parties also agree that the real property
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is subject to USDA Rural Development’s secured claim totaling
$4,000.”
[¶3] Under Rule 47, N.D.R.App.P., the United States Bankruptcy Court for the
District of North Dakota certified to this Court the following question:
“To determine what part of a North Dakota debtor’s jointly
owned homestead is exempt, does the correct application of sections
28-22-02(7), 47-18-01 and 28-22-02(10) of the North Dakota Century
Code permit the debtor to divide the equity in the homestead (full value
less secured liens) equally with his nondebtor spouse and then apply the
entire $100,000 homestead exemption to the debtor’s one-half equity
interest (as opposed to subtracting the entire $100,000 exemption from
the equity in the property and then dividing the remaining equity
between debtor and his or her nondebtor spouse)?”
B
[¶4] We may answer certified questions of law when: “(1) questions of law of this
state are involved in any proceeding before the certifying court which may be
determinative of the proceeding; (2) it appears to the certifying court there is no
controlling precedent in the decisions of the supreme court of this state.”
N.D.R.App.P. 47(a). This Court’s authority to answer a properly certified question
is discretionary. See N.D.R.App.P. 47(a) (explanatory note).
II
[¶5] The debtor argues the homestead exemption is properly administered when the
property equity is divided among the property owners, and the $100,000 exemption
is applied to the debtor’s share of the equity. The trustee claims the exemption must
be applied to the full value of the property and the remaining amount split between
the property owners.
[¶6] Section 541(a)(1) of the Bankruptcy Code provides the bankruptcy estate
established at the commencement of the case to include “all legal or equitable
interests of the debtor in property. . . .” 11 U.S.C. § 541(a)(1). A trustee stands in the
shoes of the debtor and takes no greater rights than the debtor as of the filing date of
the bankruptcy. In re Chernushin, 584 B.R. 567, 572 (D. Colo. 2018). The
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Bankruptcy Code allows debtors to exempt specific property from the estate,
excluding it from the property available to satisfy debts. In re Benn, 491 F.3d 811,
813 (8th Cir. 2007). Section 522(b)(2) authorizes states to opt-out of the federal
bankruptcy exemptions and provide state exemptions. 11 U.S.C. § 522(b). North
Dakota chose to enact property exemptions under this section’s authority, limiting its
residents to state exemptions rather than federal.
[¶7] North Dakota’s homestead provision places designated homestead property out
of the reach of creditors while it is occupied as a home, or as otherwise stated, to
secure a debtor’s essential shelter from creditors. N.D.C.C. § 47-18-01; Farstveet v.
Rudolph, 2000 ND 189, ¶ 11, 630 N.W.2d 24. Courts afford exemption statutes a
liberal interpretation. In re Murphy, 292 B.R. 403, 407 (Bankr.D.N.D. 2003).
However, the right to claim exemptions under the homestead statute is not without
limits. Farstveet, at ¶ 11. “Most courts find that the debtor’s interest in property
jointly held by a nondebtor becomes property of the estate upon filing of the
bankruptcy petition, but that the nondebtor’s interest is not property of the estate.”
In re Abernathy, 259 B.R. 330, 332 (B.A.P. 8th Cir. 2001).
[¶8] Under Chapter 28-22, N.D.C.C., certain property is exempt from attachment,
prejudgment, or other mesne process, and from levy and sale upon execution and any
other final court process. N.D.C.C. § 28-22-01. The homestead as created, defined,
and limited by law is absolutely exempt from all process, levy, or sale. N.D.C.C. §
28-22-02(7). The homestead exemption is defined, in relevant part:
“The homestead of any individual, whether married or
unmarried, residing in this state consists of the land upon which the
claimant resides, and the dwelling house on that land in which the
homestead claimant resides, with all its appurtenances, and all other
improvements on the land, the total not to exceed one hundred thousand
dollars in value, over and above liens or encumbrances or both. The
homestead shall be exempt from judgment lien and from execution or
forced sale, except as otherwise provided in this chapter.”
N.D.C.C. § 47-18-01.
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[¶9] The debtor’s one-half interest in the Jamestown real estate became the property
of the estate when he filed the bankruptcy petition. The nondebtor spouse retained
the remaining one-half interest in the property outside of the bankruptcy estate. To
allow the trustee access to the entire value of the real estate before the exemption
would effectively bring the nondebtor spouse’s property into the estate, diminish the
nondebtor spouse’s interest, and would be contrary to the law directing liberal
interpretation of exemptions.
[¶10] A bankruptcy court applying Missouri law ruled on this issue in Abernathy,
where a trustee objected to a debtor’s claim of homestead exemption in property
which she owned in joint tenancy with her two sisters. The court held the debtor was
entitled to claim the full amount of the homestead exemption because no other joint
tenant claimed an exemption in the property and the debtor was not trying to protect
the nondebtors’ interest from joint creditors. In re Abernathy, 259 B.R. 330, 338
(B.A.P. 8th Cir. 2001). In Montana a debtor may claim the entire homestead
exemption on the undivided half interest in the property if a married debtor’s creditor
moves against his undivided interest in the homestead property held in joint tenancy.
Neel v. First Fed. Sav. and Loan Ass’n, 675 P.2d 96, 106 (Mont. 1984).
[¶11] The trustee here correctly notes the Missouri statute in Abernathy includes
language allowing each owner a homestead claim not to exceed the total exemption
amount. M.S.A. § 513.475(1). While N.D.C.C. § 47-18-01 does not explicitly
address whether a joint tenant can use the maximum exemption for an undivided
interest, no language in our statutes prohibit such an interpretation. Nor is the result
foreclosed by the trustee’s argument that only a “head of a family” may claim a
homestead exemption. Section 28-22-02, N.D.C.C., exempts the homestead as
created, defined, and limited by law. While Chapter 28-22 uses the phrase “head of
a family” throughout, the homestead exemption is established in N.D.C.C. §
47-18-01. The definition of the homestead exemption was amended in 1979 to remove
references to the head of a family, and the legislature no longer considers the
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homestead a “family” right. Since the 1979 amendments, single individuals possess
the right to a homestead the same as married persons, and the trustee’s reliance on
cases utilizing a family right to homestead before the 1979 amendments emphasizes
a vintage concept of law that barred all but the heads of families from claiming a
homestead exemption.
[¶12] Additionally, the trustee’s proposed application of the debtor’s exemption
would result in a “marriage penalty.” If a creditor forced the sale of property owned
by two unmarried individuals, the debtor would be entitled to the full exemption. See
McKechnie v. Berg, 2003 ND 136, ¶ 10, 667 N.W.2d 628 (“The law on partition of
property . . . controls the distribution of property accumulated by unmarried partners
and cohabitants.”). California addressed this situation by explaining that a marriage
penalty occurs by limiting the exemption for married individuals when a different
result would occur if the property owners were not married and an execution sale
occurred. Schoenfeld v. Norberg, 90 Cal. Rptr. 47, 52 (Ct. App. 1970). We agree
with California that “no basis exists for affording the creditor a stronger hand as
against property held in cotenancy with the claimant’s spouse than as against property
in which the cotenant is not married to the claimant.” Id. at 53.
[¶13] The trustee relies on a Vermont case where a married couple filed separate
petitions for bankruptcy and each attempted to claim the homestead exemption.
D’Avignon v. Palmisano, 34 B.R. 796 (D. Vt. 1982). The case at bar is easily
distinguished because only one spouse filed for bankruptcy, and no evidence suggests
the nondebtor spouse is planning a bankruptcy claim. While the current language of
the North Dakota statute may allow a homestead exemption by the nondebtor spouse
in a future bankruptcy, unintended consequences are for the legislature to correct, and
equitable concerns for situations that have yet to occur are not permissible bases for
this Court’s statutory interpretation. See In re Abernathy, 259 B.R. 330, 338
(B.A.P. 8th Cir. 2001) (“If, at a later date, the application of the unambiguous
language of the statute results in an unintended consequence, that will be for the
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Missouri legislature to correct. The fact that this situation arises in bankruptcy does
not change this result.”).
III
[¶14] The debtor is entitled to an exemption up to $100,000 for his undivided
one-half interest in the jointly held homestead property. We answer the certified
question “yes.”
[¶15] Daniel J. Crothers
Jerod E. Tufte
Jon J. Jensen
Lisa Fair McEvers
Gerald W. VandeWalle, C.J.
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