In re Goldstein

In re: CANDACE GOLDSTEIN, Debtor.

No. 20-20406

United States Bankruptcy Court, D. Maine

November 19, 2021

Chapter 13

MEMORANDUM OF DECISION ON TRUSTEE'S OBJECTION TO DEBTOR'S CLAIMED EXEMPTIONS

The issue before the Court concerns the "look-back" period in 11 U.S.C. § 522(b)(3)(A) and the extent to which Debtor Candace Goldstein (the "Debtor") can claim exemptions under Maryland law following her move to Maine prior to her bankruptcy filing.^[1] For the reasons set forth below, the objections of Chapter 13 Trustee Andrew M. Dudley (the "Trustee") to certain of those exemptions are hereby sustained.

I. Factual and Procedural History.

The Debtor resided in Maryland from November 2016 through November 2018. She eventually relocated to Maine and, on November 3, 2021, filed her petition for bankruptcy relief. In schedules accompanying her petition, the Debtor claimed exemptions in various assets under Maryland state law. The Trustee objected to most, but not all, of the Debtor's exemptions. The Court conducted an initial hearing on the Trustee's objections on February 3, 2021 and then continued the matter several times while, inter alia, the Bankruptcy Appellate Panel for the First Circuit (the "Panel") considered the appeal of an order issued in In re O'Neil, 2020 WL 3634387 (Bankr. D Me. June 19, 2020), pursuant to which Judge Michael A. Fagone overruled the Trustee's objections to an exemption on a similar issue under the same Maryland statute.

As of the last hearing held on this matter, on April 28, 2021, no ruling had issued in the O'Neil appeal, but a decision was expected in short order. This expectation, coupled with confirmation from Debtor's counsel that no amendments to the Debtor's exemption claims would be forthcoming, led the Court to take the matter under advisement pending the Panel's decision. On May 24, 2021, the Panel dismissed O'Neil for lack of jurisdiction, leaving this Court to forge ahead to make its own determination as to the Trustee's objections. Dudley v. O'Neil (In re O'Neil), 2021 WL 2069922 (1^stCir. B.A.P. May 21, 2021).

II. The Applicable Law.

Generally, upon the commencement of a bankruptcy case, all of the debtor's legal and equitable interests in property become part of the bankruptcy estate. Bankruptcy Code § 541(a). With some exceptions, the Bankruptcy Code permits a debtor to remove, or claim as exempt, certain property under either the federal exemption scheme or the applicable state law exemption scheme. Bankruptcy Code § 522(b)(2), (3)(A) and (d). Congress imposed limits on a debtor's choices. For example, if an applicable state "opts out" of the federal exemption scheme, a debtor may only use the state law exemptions. Bankruptcy Code § 522(b)(1) and (2). Therefore, a debtor must first look to the applicable state law to determine whether a choice of exemptions exists. At least thirty-two states curtail debtors' choices and have opted out of the federal exemption scheme, thus leaving debtors to rely on state law exemptions. W. Brown, L. Ahern, N. MacLean, Bankr. Exemption Manual § 4:2 (2021 ed.).

When Congress amended the Bankruptcy Code and enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (''BAPCPA''), it lengthened the domiciliary requirement to prevent debtors from moving to a state with more generous exemption provisions on the eve of bankruptcy. Post BAPCPA, if a debtor lived in more than one state during the 730-day period leading up to the bankruptcy filing, the applicable state for exemption purposes is the state in which the debtor resided in the 180 days immediately preceding the 730-day look-back period. Bankruptcy Code § 522(b)(3)(A); In re Withington, 594 B.R. 696, 700 (Bankr. D. Colo. 2018). It also created, in the so-called "hanging paragraph" of Bankruptcy Code § 522(b)(3), a safety net to provide exemption protection for debtors in opt-out states who would otherwise be ineligible for exemptions because of the application of Bankruptcy Code § 522(b)(3)(A).^[2]

III. Issues and Positions of the Parties.

The parties agree that when it comes to claiming exemptions, the state law applicable to the Debtor is Maryland state law. Bankruptcy Code § 522(b)(3)(A). As an "opt-out" state, Maryland has divided its exemption scheme into two parts; one describing exemptions available to any individual required to look to the laws of that state under Bankruptcy Code § 522(b)(3)(A) and a second part listing exemptions made available only to individuals domiciled in the state of Maryland. Md. Code Ann., Cts. & Jud. Proc. § 11-504(b), (g).^[3] The first set of exemptions lists nine categories of personal property and interests, including a tools-of-the-trade exemption defined as "wearing apparel, books, tools, instruments, or appliances, in an amount not to exceed $5, 000 in value necessary for the practice of any trade or profession . . ." Md. Code § 11-504(b)(1).

The Debtor claimed an exemption in "household goods" under this tools-of-the-trade exemption, to which the Trustee objects, on the grounds that the general term "household goods" does not qualify under the specific language used to describe the tools-of-the-trade exemption in Md. Code § 11-504(b)(1). He argues that the Debtor, a radiology technician, did not provide enough specificity to allow the Trustee or the Court to determine whether any of her household goods qualify under this exemption.^[4] Counsel for the Debtor acknowledges that the Trustee will likely prevail on this objection but declined several invitations by the Court to amend her Schedule C.^[5]

The second set of Maryland exemptions includes a homestead exemption and a wild card exemption available only in a bankruptcy proceeding and only to "any individual debtor domiciled in this State." Md. Code § 11-504(f). The Debtor claimed exemptions in 15 Dolomite Drive, Unit 2-41A, a 2011 Honda Accord, household goods, clothing, jewelry, and a Bank of America checking account under the wild card exemption found at Md. Code § 11-504(f)(1). The Trustee argues that the Debtor, a Maine resident, is not entitled to claim the wild card exemption. The Debtor counters that, if the Trustee is correct, she is entitled to claim federal exemptions under the "hanging paragraph" in Bankruptcy Code § 522(b)(3).

The Court turns first to the objection to the tools-of-the-trade exemption and then to the larger, more complex question of whether the Debtor is eligible to claim the wild card exemption.

IV. Analysis

A. The Tools-of-the-Trade Exemption Claimed in Household Goods Under Md. Code § 11-504(b)(1).

A debtor is required to list the assets he or she claims as exempt from the bankruptcy estate. Fed.R.Bankr.P. 4003(a). This Court's local rules require a debtor to "disclose the debtor's exemption claims with meaningful particularity and the debtor must be prepared to provide detailed information regarding the assets claimed as exempt at the meeting of creditors." D. Me. LBR 4003-1. The Debtor has made no such effort with respect to her claim of exemption in "household goods" under Maryland's tools-of-the-trade exemption.

The term "household goods" is not explicitly included in the list of personal property comprising the tools-of-the-trade exemption. Md. Code § 11-504(b)(1). While the Debtor may have used that term in her Schedule C as a reference to personal property in the form of "wearing apparel, books, tools, instruments, or appliances" the Trustee argues that, on its face, the generic and vague phrase "household goods" does not support a valid exemption under Md. Code § 11-504(b)(1). Although the Trustee raised this issue at least as early as his objection filed with the Court on December 29, 2020, the Debtor steadfastly refused to provide any further information to the Trustee or the Court over the next several months of continued hearings.

On its very face, the term "household" is seemingly at odds with the purpose of the tools-of-the-trade exemption, which is to protect assets necessary to engage in commercial activity. Viewed in its entirety, the Maryland exemption scheme is carefully crafted to exempt separate, specific categories of personal and real property and evidences a coordinated effort to avoid overlap and duplication between those categories. Property described as "household goods" fits squarely within Md. Code § 11-504(b)(4) which exempts from judgment, a "debtor's interest, not to exceed $1, 000 in value, in household furnishings, household goods, wearing apparel, appliances, books, animals kept as pets, and other items that are held primarily for the personal, family, or household use of the debtor or any dependent of the debtor." Md. Code § 11-504(b)(4) (emphasis supplied). While both subparagraph (b)(1) and subparagraph (b)(4) exempt wearing apparel and books, the other items contained in each list make clear that the character of the wearing apparel and books exempted under each subparagraph is different. Subparagraph (b)(4) exempts everyday clothes and books purchased for entertainment or self-improvement while subparagraph (b)(5) exempts uniforms and manuals. Without more information, the Court simply cannot find that the phrase "household goods" describes the type of property listed in Maryland's tools-of-the-trade exemption.

Even if one could make the argument that "wearing apparel books, tools, instruments, or appliances" somehow includes "household goods," however, the Debtor would have had to explain, in the absence of any clear relationship, the necessity of the "household goods" to her work as a radiology technician. The importance of establishing the nexus between the property being claimed as exempt and the necessity of those goods to a debtor's trade or profession was emphasized by the Maryland...