James Mark Wengerd and Cheryl Sue Wengerd

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below,

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

)

In re: ) CHAPTER 7
)

JAMES MARK WENGERD & ) CASE NO. 09-62720
)

CHERYL SUE WENGERD, ) JUDGE RUSS KENDIG
)

Debtors. )

) MEMORANDUM OF OPINION
) (NOT FOR PUBLICATION)
)

On October 19, 2009, chapter 7 trustee Lisa M. Barbacci (“trustee”) filed an Objection to
Homestead Exemption and a Motion for Turnover of Property. On October 29, 2009, the trustee
________filed-a Motion for an Order Directing Debtors to Produce Accounting and Documents.A status ______
conference on the motions was held on May 12, 2010. Michael V. Demcezyk appeared in person
for the debtors James Mark Wengerd and Cheryl Sue Wengerd (“debtors”) and the trustee
appeared by telephone. At the status conference, the parties agreed to submit briefs and allow the
Court to decide the motions on the papers.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the
general order of reference entered in this district on July 16, 1984. This is a core proceeding

under 28 U.S.C. § 157(b)(2)(A), (B), (E) and (O).

This opinion is not intended for publication or citation. The availability of this opinion, in
electronic or printed form, is not the result of a direct submission by the Court.

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OBJECTION TO HOMESTEAD EXEMPTION

A. Background

The parties have stipulated to the relevant facts. On July 3, 2009, debtors filed a chapter 7
bankruptcy petition. At the time of filing, the debtors owned and lived at the property known as
14654 Duquette Ave. NE, Hartville, OH 44632 (“property”). Prior to the filing of the petition,
the debtors contracted to sell the property to Robin R. Pratt (“Pratt”) for the sum of $205,000.
The sale closed four days after the filing of the petition on July 7, 2009. The debtors paid off first
and second mortgages with the proceeds of the sale in the total amount of approximately
$165,000. The debtors received the remaining $35,374 at the closing.

Schedule C claims an exemption in debtors’ property. However, the debtors fail to
disclose the pending sale of the property in their petition. Schedule E, which requires the debtors
to list executory contracts, makes no mention of the contract to sell the property. In addition, the
Chapter 7 Individual Debtor’s Statement of Intention states that the debtors intend to retain the

property.
B. Analysis

Pursuant to 11 U.S.C. § 522(b), Ohio has opted out of the exemptions provided by federal
statute. The homestead exemption for Ohio debtors is provided by Ohio Revised Code §
2329.66, which states 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:

(b) ... [T]he person’s interest, not to exceed twenty thousand two hundred
dollars,' in one parcel or item of real property that the person or a dependant
of the person uses as a residence.

(emphasis added).

The trustee argues that the debtors are not entitled to a homestead exemption for two
reasons. First, the trustee argues that because the debtors did not intend to live at the property

'On April 1, 2010, this amount automatically adjusted based on the formula provided in
section 2329.66(B). However, because the debtors filed their petition before April 1, 2010, the
adjusted amount is not applicable. See In re Cope, 80 B.R. 426, 427 (1987).

2

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post-petition, the property is not a “residence” within the meaning of section 2329.66.’ The
trustee also argues that the debtors’ homestead exemption should be denied because of their bad
faith in failing to reveal the pending sale of the property on their bankruptcy petition.

No Ohio appellate court has issued an opinion regarding whether “residence, ” as that
term is used in the present exemption statute, requires an intent to stay. Several bankruptcy courts
interpreting Ohio law have tackled the issue, and the cases are split. Compare In re Cope, 80
B.R. 426, 428 (Bankr. N.D. Ohio 1987) (holding that the debtor is entitled to a homestead
exemption because “residence” continues until the property is abandoned) with In re Garland, 98
B.R. 767, 770 (Bankr. S.D. Ohio 1989) (holding that the debtor is not entitled to a homestead
exemption because “residence” requires an intention to continue living at the property); In re
Pagan, 66 B.R. 196 (Bankr. N.D. Ohio 1986) (same).

This Court finds 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. Under prior
exemption statutes, the subjective intent of the debtor was important. In the case of McComb v.
Thompson, 42 Ohio St. 139 (1884), Mr. McComb sold his house despite the liens of several
judgment creditors. Even though he had no intention to purchase a new residence, he claimed
that he held a homestead exemption in the proceeds of the sale. The court found that the
homestead exemption did not apply because the debtor lacked the intent to purchase another
property. By contrast, in cases where the debtor intends to reinvest the proceeds of the sale ina
new residence, courts have found that the debtor is entitled to claim a homestead exemption.
E.g., Stewart v. Boyd, 6 Ohio Dec. 973 (1880). The only fact that distinguishes these two
situations is the intent of the individual claiming the homestead exemption.

In addition, the majority of cases from other states require an intent to stay at the property
as a precondition to claiming a homestead exemption. See, e.g., In re Cole, 185 B.R. 95, 97
(Bankr. N.D. Maine 1995) (Maine statute); In re Crippen, 36 B.R. 7, 9 (Bankr. Mo. 1983)
(Missouri statute); Ray v. Metzger, 165 S.W.2d 207, 210 (Tex. Civ. App. 1942) (Texas statute).
Cases in the majority reason that because the purpose of a 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. See Cole, 185 B.R. at 97. The Court finds this
rationale persuasive and agrees with the majority of courts that have considered this issue.

However, the Court also agrees with those cases that attribute strong evidentiary weight
to the fact that a debtor is occupying the residence on the petition date. A bankruptcy debtor 1s in
financial turmoil and may be entertaining conflicting ideas regarding his residence. As such, a
debtor’s mere declaration that he intends to abandon his homestead is inadequate to overcome
the strong presumption he intends to continue occupying his property. Matter of Kennard, 970

Because the debtors moved from Ohio to Kansas, the trustee’s intent argument also
raises the issue as to whether the debtors where “domiciled in this state” as of the petition date.

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F.2d 1455, 1459 (5th Cir. 1992). Similarly, an unrealized attempt to sell or lease a property does
not overcome the presumption that a debtor who actually occupies his residence intends to stay
there. Matter of Bradley, 960 F.2d 502, 509 (5th Cir. 1992); In re Bernstien, 62 B.R. 545, 549
(Bankr. D. Vt. 1986). Instead, to show intent to abandon his property, the debtor must perform a
pre-petition action that clearly evidences an intent to abandon his residence immediately post-

petition.

In this case, the debtors showed an absolutely clear intent to abandon the property by
entering into a pre-petition sales contract and actually selling their residence four days after filing

their bankruptcy petition.
Accordingly, the trustee’s objection to the debtors’ homestead exemption is sustained.

MOTION FOR TURNOVER OF PROPERTY

The trustee seeks turnover of $35,374 from the sale of the property and turnover of 2008
state and federal tax refunds in the amounts of $4,577 and $17,166, respectively.’

A. The proceeds from the sale of the property

For the reasons discussed above, the proceeds from the sale of the debtors’ property are
non-exempt property of the estate and must be turned over to the chapter 7 trustee.

B. The 2008 tax returns

The parties have stipulated that the debtors filed federal and state tax returns on March
31, 2009. The funds from the tax returns were most likely received by the debtors several months
prior to the bankruptcy filing. The bankruptcy estate is formed on the date of the filing of the
petition. 11 U.S.C. § 541(a)(1). Therefore, to the extent that the tax returns were spent pre-
petition, they were never property of the bankruptcy estate. However, to the extent that the
trustee’s investigation reveals that the tax returns were not spent pre-petition, the funds must be

turned over to the trustee as property of the estate.’

>The trustee’s brief in support of her motion also asks for proceeds from the liquidation of
debtors’ business. However, the Court does not rule on this issue because funds from the
liquidation of the debtors’ business are not requested in the trustee’s original motion. The Court
also notes that the facts are poorly developed on this issue.

“The debtors’ Schedule C claims an exemption in the tax returns but also affirmatively
states that the funds from the tax returns had been spent at the time of the petition. As such, the
Court finds that the debtors do not claim an exemption in any remaining funds from the tax

returns.

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Accordingly, the trustee’s motion for turnover is granted in part and denied in part.

MOTION FOR ORDER DIRECTING DEBTORS TO PRODUCE DISCOVERY

The trustee seeks documents and accounting regarding (1) the sale of the debtors’
property and the debtors’ use of the proceeds; (2) the sale of Crosswalk Christian Bookstore and
related inventory and the debtors’ use of the proceeds; and (3) receipt and use of the 2008 tax

returns.

The debtors have a duty to comply with the trustee’s requests pursuant to 11 U.S.C. §
521(a)(3), which states that a debtor shall “cooperate with the trustee as necessary to enable the
trustee to perform the trustee’s duties.” Pursuant to 11 U.S.C. § 704, the trustee has a duty to
“investigate the financial affairs of the debtor.” Thus, the trustee is entitled to any and all
information regarding the debtors’ financial affairs regardless of whether the information relates
to exempt assets, whether the information relates to property of the estate and whether, in the
debtors’ opinion, the information is interesting.

Accordingly, the trustee’s motion for an order directing debtors to produce accounting
and documents is granted.

An order will issue with this opinion.
# # #

Service List:

James Mark Wengerd

518 N Main St

Hesston, KS 67062

Cheryl Sue Wengerd

518 N Main St

Hesston, KS 67062

Lisa M. Barbacci

P.O. Box 1299
Medina, OH 44258-1299

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United States Trustee, Region 9
HM Metzenbaum US Courthouse
201 Superior Ave

Ath Floor, Suite 441

Cleveland, OH 44114

Michael V. Demezyk
12370 Cleveland Ave NW
PO Box 867

Uniontown, OH 44685

John J Rutter

Roetzel & Andress, LPA
222 S. Main Street
Akron, OH 44308

Michael J Moran

Gibson & Lowry

PO Box 535

234 Portage Trail
Cuyahoga Falls, OH 44222

Lenore Kleinman ust04
Office of the US Trustee
Howard M. Metzenbaum U.S. Courthouse

201 Superior Avenue, East
Suite 441
Cleveland, Oh 44114-1240

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