Reeves v. Callaway

Summarized by Robert Stenzhorn , Virginia Legal Aid Society, Inc.
12 years 3 months ago

Citation:

Reeves v. Callaway, 2013 U.S. App. LEXIS 23358, Case No. 12-2127 (4th Cir. Nov. 20, 2013) (unpublished) (per curiam)

Tag(s):

Ruling:

PER CURIAM Affirming the Bankruptcy Court and District Court holdings: Debtors' Residence remained property of the bankruptcy estate despite the bankruptcy court allowing Debtors to reserve an exemption of $60,000 [under applicable state opt-out provisions] as their aggregate interest in Debtors' Residence subordinate to the first mortgage lien and the federal tax lien. Therefore, Debtors' argument that the Trustee lacks the statutory authority to sell Debtors' Residence because such asset is no longer property of the bankruptcy estate is without merit. Note: Unpublished opinions are not binding precedent in this circuit.

Procedural context:

The Chapter 7 Debtors appealed the United States Bankruptcy Court of the Eastern District of North Carolina’s (Raleigh Division No. 10-02562-8-SWH) order granting the Trustee permission to sell Debtors' Residence to the United States District Court for the Eastern District of North Carolina. On appeal, the district court affirmed on the reasoning of the bankruptcy court. Debtors filed a timely appeal of the district court's order to the Fourth Circuit Court of Appeals as the second layer of appellate review in bankruptcy proceedings. The Trustee and the IRS were the appellees in the present appeal. The National Association of Consumer Bankruptcy Attorneys (NACBA) and the National Association of Bankruptcy Trustees (NABT) filed briefs amici curiae in support of the Appellant and the Appellee, respectively.

Facts:

The Chapter 7 debtors contended that because the value of their actual interest in their residence does not exceed the amount of aggregate interest in such residence they claim as exempt from the bankruptcy estate under North Carolina law, the bankruptcy court's grant of their claimed exemption in the residence actually removed the entirety of the residence from the bankruptcy estate, such that the bankruptcy court lacked statutory authority to grant the bankruptcy trustee permission to sell the residence as part of his duties in administering the bankruptcy estate. The residence had a fair market value of $ 325,000, a properly secured mortgage balance of $ 195,000, and federal tax lien of $ 382,200. The IRS agreed to a “carve-out” of its amount limited to 30% of the sale proceeds, and the remaining balance to be paid pro rata as unsecured. Under North Carolina statute the Debtor’s possessed an exemption of $ 60,000 with regard to the “equity” in the residence. The Debtor’s asserted that the exemption removes the residence from inclusion in the bankruptcy estate and subsequent sale by the trustee. Relying on Schwab v. Reilly, 130 S. Ct. 2652, 2661-63 (2010) the court held the exemption does not pertain to the real property itself, but to the debtor’s interest in the asset.

Judge(s):

Judges Dennis W. SHEDD and James A. WYNN, Jr., and Senior Judge Clyde H. HAMILTON

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