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Summarizing by Lars Fuller

Kelli Allen v. Yvette Gonzales, Chapter 7 Trustee

Case Type:
Case Status:
20-038 (10th Circuit, Jun 07,2021) Not Published
The U.S. Bankruptcy appellate Panel of the Tenth Circuit (BAP) reversed the denial of two chapter 7 debtors’ exemption claim, pursuant to section 522 of the Code and New Mexico state law, in the cargo trailer used in their concrete refinishing business by the U.S. Bankruptcy Court for the District of New Mexico (BC) due to the failure of Yvette Gonzales, in her role as the trustee (TR), to meet her burden of proof as the objecting party in accordance with Bankruptcy Rule 4003(b).
Procedural context:
In response to the amended schedules filed by Kelli and Paul Allen (DRs), the TR filed an objection to their exemption claims on November 1, 2019 (Objection to Exemptions). The TR argued that the DRs were not entitled to a $750 exemption in a 1998 Pace American twenty-eight-foot cargo trailer valued at $1,000 (Trailer), which they purportedly used to transport and store materials used in various jobs performed by their jointly owned concrete refinishing business, for two reasons: (1) they had already exempted the maximum under New Mexico’s $500 personal property wild card exemption, and (2) the Trailer did “not fall within any of the other permissible categories for an exemption.” In retort, the DRs claimed the Trailer exempt pursuant to New Mexico’s tools of the trade exemption, not the “wildcat exemption” that the TR incorrectly asserted, because they used it to operate their concrete refinishing business. They personally own the Trailer, the DRs conceded; however, they utilized it to store and transport materials, supplies, tools, and equipment their business used, they added. The TR never responded to this clarification. After the DRs' closing argument at the hearing held on June 26, 2020, the BC identified three issues regarding the tools of the trade exemption: (1) whether the Trailer may be considered a tool of a trade; (2) whether the DRs’ failure to list any tools of the trade in Schedule A/B prevented them from claiming the exemption; and (3) whether the Trailer is owned by the DRs or their business. Ultimately, the BC denied the DRs’ $750 claim of exemption in the Trailer, as concrete refinishing could not “fairly be considered a ‘trade’ of … [the DRs], who primarily relied on … [the husband’s] employment at FedEx for their support.” In so doing, it rested its analysis on two conclusions: (1) the Trailer “could qualify as a tool of the concrete refinishing trade” under the “use test” as it was used exclusively in the business and necessary to the business, and (2) New Mexico courts would likely “insist that a secondary trade contribute in a meaningful way to the debtor’s support” to qualify. While the TR had also objected to Debtors’ claimed exemption in certain garnished wages, the DRs’ appeal focused solely on the trade exemption’s application to the Trailer.
The DRs filed a chapter 7 bankruptcy petition on August 8, 2019. This duo disclosed their ownership of J&K Ventures, LLC, d/b/a Advanced Concrete Transformations (J&K) in their bankruptcy schedules. Through this entity, the DRs performed concrete refinishing services, in addition to their regular employment. The DRs valued their interests in J&K at $6,448.17, primarily based on the value of tools and equipment it owns, but also listed ownership of the Trailer. The Trailer, and the DRs’ differing classification of this property, was the crux of their dispute with the TR. Originally, in Schedule C, the DRs exempted $1,450.17 of their interest in J&K pursuant to New Mexico Statutes §§ 42-10-1, -23 and $4,025 of their interest pursuant to New Mexico Statutes § 48-2-15.4. In April 2020, the DRs twice amended their schedules. In amended Schedule C, they removed the exemption claim for J&K and claimed a $750 exemption in the Trailer solely pursuant to New Mexico Statutes §§ 42-10-1, -2.5 DRs also added a new exemption of $2,630.08 in “unpaid wages garnished pre-petition by Capital One Bank.”
Michael E. Romero; Dale L. Somers; and Cathleen D. Parker

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