DuVall v. County of Ontario
The Second Circuit found discretion to avoid a constructively fraudulent transfer of exempt property that would have enabled the debtor to pay her creditors in full.
- Rochelle Quick Take
View Rochelle Summary- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- 21-2917-bk (2nd Circuit, Sep 29,2023) Published
- Tag(s):
- Ruling:
- When determining whether a transfer left an entity insolvent, courts must accept the facts as they are and not as they hypothetically may be. Thus, when a debtor declared property as exempt under 11 U.S.C. § 522, and the transferee did not timely object to the declaration, such property is exempt under section 522(l), including for purposes of determining insolvency under 11 U.S.C. § 101(32)(A), even if a timely-filed objection would have been sustained.
- Procedural context:
- The debtor timely filed an adversary proceeding against appellant Ontario County, New York, to avoid the county's foreclosure on the debtor's real property for failing to pay certain taxes. The only disputed issue was whether the tax foreclosure left the debtor insolvent. The bankruptcy court found that it did and avoided the tax foreclosure under 11 U.S.C. § 548. The county appealed, and the district court affirmed. The county timely appealed to the Second Circuit.
- Facts:
- The debtor, Cori Duvall, received a 49-acre farm and residence in Ontario County, New York, from her mother at the end of December 2014. Duvall failed to pay approximately $22,000 in property taxes in 2015. The county began a tax foreclosure proceeding. Duvall failed to answer, and the state court entered a default judgment in favor of the county. The property was transferred to the county on March 7, 2017. Duvall sought to vacate the foreclosure. The state court denied her application, and Duvall appealed. The state appellate court affirmed the foreclosure. The county sold the property for $91,000, of which $69,000 was surplus over the tax debt. The county, however, did not deliver the deed to the buyer. On March 1, 2019, Duvall filed a chapter 13 bankruptcy petition and, within two weeks, filed her schedules. All of these were served on the county. An annuity was listed in the scheduled assets. Duvall marked the full value of the annuity as exempt under 11 U.S.C. § 522(d)(11)(E). No one, including the county, objected to the declared exemption within the 30-day limit set by Fed. R. Bankr. P. 4003(b)(1). Thus, under 11 U.S.C. § 522(l), the annuity was exempted from the bankruptcy estate. Seven weeks after filing her petition, Duvall commenced an adversary proceeding against the county, asking the bankruptcy court to avoid the tax foreclosure as a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B). The only fact in dispute was whether the tax foreclosure left Duvall insolvent (11 U.S.C. § 548(a)(1)(B)(ii)(I)). The county argued that the tax foreclosure did not leave Duvall insolvent because she owned the annuity and Duvall improperly identified the annuity as exempt. Duvall argued that the annuity should not be included in the calculation of her solvency because it was exempt under 11 U.S.C. § 522(l) due to any timely objection. The courts decided the issue of insolvency using the definition in 11 U.S.C. § 101(32)(A). Clause (ii) of that section states that insolvency is determined "exclusive of… property that may be exempted from property of the estate under section 522." Because no one timely objected to Duvall's inclusion of the annuity as exempt property, the courts determined that it properly "may be exempted from property of the estate under section 522." The tax foreclosure thus left Duvall insolvent.
- Judge(s):
- CALABRESI, LOHIER, and KAHN, Circuit Judges