Opinion
Case No. 97-15579-SSM
November 19, 1997
Karen A. Blatter, Esquire, Fairfax, VA, of Counsel for the debtor
MEMORANDUM OPINION
A hearing was held in open court on November 18, 1997, on the chapter 7 trustee's objection to the debtor's claimed exemptions. The debtor was present by counsel. The chapter 7 trustee, Gordon P. Peyton, was present in person. For the reasons stated, the claimed homestead exemption, as well as the claimed exemption of one of the automobiles, must be disallowed.
Facts
Eliseo Manalac ("the debtor"), who is a resident of the City of Alexandria, Virginia, filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on July 28, 1997. Relevant to the present controversy, he listed on his schedule of assets a checking account in Crestar Bank with a balance of $2,000.00, a 1986 Montero automobile, and a 1989 Ford Taurus automobile. Both automobiles were listed as being of "unknown" value. On his schedule of property claimed exempt, he claimed the checking account exempt under the Virginia homestead exemption, Va. Code Ann. § 34-4, and the two cars under the Virginia poor debtor' exemption, Va. Code § 34-26.
The meeting of creditors was held on September 4, 1997. On September 11, 1997, the debtor filed amended schedules of assets and exemptions. These continued to list, and to claim exempt, the Crestar Bank checking account. The 1986 Montero was now valued at $2,000, all of which was claimed exempt under Va. Code § 34-26(8). The 1989 Ford Taurus was valued at $2,425, of which $2,000 was claimed exempt under Va. Code Ann. § 34-26(8), with the remaining $425 claimed exempt under § 34-26(4a). On October 29, 1997, after having been furnished with a copy of the recorded homestead deed, the trustee filed an objection to the debtor's claim of exemptions on the ground that the homestead deed had not been timely filed.
An order had previously been entered extending the time for the trustee to file objections to the debtor's claimed exemptions to December 28, 1997.
At the hearing, the court received in evidence the debtor's homestead deed dated September 6, 1997. On the homestead deed, the debtor listed property valued at $16,225.00. This included the $2,000 Crestar Bank checking account, the 1989 Ford Taurus, and the 1986 Montero, as well as $9,000 in a 401(k) plan, $300 in unpaid wages, $100 cash on hand, $300 in household furnishings, and $100 in clothing. The homestead deed contains a certificate of the clerk of the Circuit Court for the City of Alexandria reflecting that it was recorded on September 10, 1997, at 9:12 a.m., as instrument number 12866. Debtor's counsel represented that the homestead deed had been mailed by certified mail, return receipt requested, to the Clerk of the Alexandria Circuit Court on September 9, 1997, and that it was received by the Clerk the following day, September 10, 1997. Although no evidence was actually offered with respect to the date of mailing, the trustee does not contest counsel's representation, and for the purpose of this ruling the court assumes it to be true.
On the homestead deed, the debtor listed no dependents and answered "no" to the question asking whether he was a disabled veteran. As discussed below, the maximum amount that could therefore be claimed exempt was $5,000. For reasons that are unexplained, the debtor included on his homestead deed not only the property listed on his Schedule C as being exempt under Va. Code Ann. § 34-4, but also property that he was claiming exempt under the Virginia poor debtor exemption. This is both confusing and unnecessary, as the Virginia statutes are quite explicit that a homestead deed is not required to perfect any exemption other than the homestead exemption. See, Va. Code Ann. § 34-26 ("It shall not be required that a householder designate any property exempt under this section in a deed in order to secure such exemption"); Va. Code Ann. § 34-6 ("Such writing or deed shall not be required to secure any exemption under this Code except those exemptions created by §§ 34-4 and 34-4.1"); Va. Code Ann. § 34-14 ("Such writing or deed shall not be required to secure any exemption under this Code except those exemptions created by §§ 34-4, 34-4.1, and 34-13").
This was listed on the debtor's schedules as a "profit sharing plan," and was not expressly claimed exempt. The trustee has nevertheless not asserted a claim to it, and the court therefore makes no findings with respect to it. See, Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992) (ERISA-qualified retirement plans not property of the bankruptcy estate); In re Hones, 162 B.R. 733 (Bankr. E.D. Va. 1994) (same); Va. Code Ann. § 34-34 (creating limited exemption for non-ERISA retirement plan).
This was neither listed as an asset, nor claimed exempt, on the debtor's schedules.
Conclusions of Law and Discussion I.
The issues before the court are (a) whether the debtor's homestead exemption has been timely perfected under Virginia law and (b) whether the automobiles may be independently claimed exempt under the Virginia "poor debtor's" exemption. This court has jurisdiction of the controversy under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. Under 28 U.S.C. § 157(b)(2)(B), this is a core proceeding in which final orders and judgments may be entered by a bankruptcy judge, subject to the right of appeal under 28 U.S.C. § 158.
II.
Under § 522(b), Bankruptcy Code, an individual debtor may exempt from property of the bankruptcy estate "and thus retain, free from the claims of most creditors— either the property specified in § 522(d), Bankruptcy Code ("the Federal exemptions"), or, alternatively, the exemptions allowable under state law and general (i.e., nonbankruptcy) Federal law. A state, however, is permitted to "opt out" of allowing its residents to take advantage of the Federal exemptions. § 522(b)(1), Bankruptcy Code. Virginia has done precisely that. Va. Code Ann. § 34-3.1. Accordingly, residents of Virginia filing bankruptcy petitions may claim only those exemptions allowable under state law and general Federal law. In re Smith, 45 B.R. 100 (Bankr. E.D. Va. 1984). The specific exemptions at issue here are the "homestead" exemption created by Va. Code Ann. § 34-4 and the "poor debtor's" exemption created by Va. Code Ann. § 34-26.
The limited class of creditors who may enforce their claims against exempt property is set forth in § 523(c), Bankruptcy Code. See, In re Scott, 199 B.R. 586 (Bankr. E.D. Va. 1996).
III.
Under the homestead exemption, a "householder" "defined as any resident of Virginia" may hold up to $5,000 of real or personal property exempt by filing for record an instrument known as a homestead deed in the clerk's office of the Circuit Court for the city or county where the real property is located or, if personal property is claimed, where the debtor resides. Va. Code Ann. §§ 34-4, 34-6, 34-13, and 344-14. Additional amounts may be claimed exempt if the householder supports dependents or is a disabled veteran. Va. Code Ann. §§ 34-4 (additional $500 for each dependent) and 34-4.1 (additional $2,000 for disabled veteran).
In the case of a debtor who has filed for bankruptcy, the homestead exemption must be "set apart" no later than 5 days after the first date set for the meeting of creditors in the bankruptcy case. Va. Code Ann. § 34-17. Section 34-14 specifies how a homestead exemption is "set apart"
Where a case is converted to chapter 7 from chapter 13 or chapter 11, the five days runs from the meeting of creditors in the converted (i.e., chapter 7) case. Va. Code Ann. § 34-17.
Such personal estate selected by the householder and under §§ 34-4, 34-4.1, or § 34-13 shall be set apart in a writing signed by him. He shall, in the writing, designate and describe with reasonable certainty the personal estate so selected and set apart and each parcel or article, affixing to each his cash valuation thereof. Such writing shall be admitted to record, to be recorded as deeds are recorded in the county or city wherein such householder resides.
(emphasis added). Failure to strictly comply with the requirements of setting apart a homestead exemption results in the loss of that exemption in bankruptcy. Zimmerman v. Morgan, 689 F.2d 471, 472 (4th Cir. 1982); In re Freedlander, 93 B.R. 446, 448-49 (Bankr. E.D. Va. 1988) (Shelley, J.).
It is well-settled in Virginia that in interpreting the scope of an exemption, a court must do so liberally in favor of the debtor, with any doubts to be resolved in favor of allowing the exemption. Tignor v. Parkinson (In re Tignor), 729 F.2d 977, 981 (4th Cir. 1984), citing South Hill Production Credit Assn. v. Hudson, 174 Va. 284, 6 S.E.2d 688 (1940) and Atlanta Life Ins. Co. v. Ring, 167 Va. 121, 187 S.E. 449 (1936); In re Webb, 210 B.R. 266, 272 (Bankr. E.D. Va. 1997); In re Hayes, 119 B.R. 86, 88 (Bankr. E.D. Va. 1990) (Shelly, J.) (exemption statutes are to be "iberally construed so as to afford the relief which the legislature intended the debtor to enjoy"); In re Perry, 6 B.R. 263, 264 (Bankr. W.D. Va. 1980) (Pearson, J.); In re Williams, 3 B.R. 244, 246 (Bankr. E.D. Va. 1980) (Shelly, J.). It is just as well-settled, however, that in order to claim a homestead exemption, a debtor must strictly comply with the procedural requirements for setting apart and perfecting such exemption. See, e.g., In re Heater, 189 B.R. 629, 638 (Bankr. E.D. Va. 1995) (Shelley, J); In re Haynesworth, 145 B.R. 222, 226 (Bankr. E.D. Va. 1992) (Shelley, J.); Freedlander, 93 B.R. at 448; In re Pennington, 47 B.R. 322, 326 (Bankr. E.D. Va. 1985) (Bostetter, C.J.).
As noted, § 34-14 directs that homestead deeds are to be recorded Us deeds are recorded. "Under Va. Code Ann." 55-96, a deed or deed of trust is void as to purchasers for valuable consideration without notice and to all lien creditors Until and except from the time it is duly admitted to record" (emphasis added) in the city or county where the real estate is located. Section 17-59 specifies the duty of the clerk to record writings authorized by law to be recorded. It states, in relevant part:
Every writing authorized by law to be recorded . . . upon payment of fees for the same and the tax thereon, if any, shall, when admitted to record, be recorded by or under the direction of the clerk on such media as are prescribed by D 17-70. . . . [I]f the writing or deed is accepted for record and spread on the deed books, it shall be deemed to be validly recorded for all purposes. . . . Upon admitting any such writing or other paper to record the clerk shall endorse thereon the day and time of day of such recordation.
(emphasis added).
Looking at the plain language of the statute, "recordation" of a writing therefore involves two distinct steps: the writing must first be [a]dmitted to record, "and then it must be [s]pread on the deed books. It is the "day and time of day," of the former — the [a]dmission to record"" that the clerk is required to endorse on the instrument. See Fooshee v. Snavely, 58 F.2d 772, 774 (W.D. Va. 1931), aff'd 58 F.2d 774 (4th Cir. 1932), cert. denied 287 U.S. 635, 53 S.Ct. 85, 77 L.Ed. 550 (1932). The question nevertheless remains as to what act is necessary in order for a writing to be considered "admitted to record." No definition of this phrase is provided by any of the statutes previously cited. While no Virginia case has squarely addressed the issue of when a document is "admitted to record," the case law seems clear that the instrument must at the very least be in the actual possession of the clerk. See, Beverley v. Ellis Allan, 22 Va. (1 Rand. 102) 46 (1822) (adverse claimants had constructive notice of prior conveyance once it was "lodged with the clerk to be recorded" even though thereafter lost by the clerk before it could be copied into the deed book); Horsley v. Garth Colquit, 43 Va. (2 Gratt. 472) 446 (1846) (deed could not be considered admitted to record on the day when it had been brought to the courthouse a few minutes before midnight, but no one was there to receive it, and it was not actually delivered to the clerk until the next morning); Fooshee v. Snavely, supra (deed not accompanied by the proper filing fee not "admitted to record" simply because it had been received by the clerk in the mail). See, also, see In re Smith, 256 F. Supp. 844, 851 (E.D. Va. 1966) (Hoffman, J.), rev'd on other grounds, 377 F.2d 271 (4th Cir. 1967) (reasoning that the term "received" was synonymous with the term "filed" and accordingly finding that a lien attaches to an automobile as of the date of receipt by the Division of Motor Vehicles of the requisite paperwork if the documentation is in proper form along with the required fee).
The clerk is also required by statute to index the instrument "immediately upon admission . . . to record." Va. Code Ann. D 55-96(A)(2).
This court has previously held that a homestead deed, delivered to the clerk by a commercial delivery service within the five-day period specified by § 34-17, but not actually recorded until the following day, was not timely "admitted to record" for the purpose of perfecting the Virginia homestead exemption. In re Franklin, "B.R.", 1997 WL 709982. (Bankr. E.D. Va., Sep. 30, 1997). That ruling is currently on appeal. This case, of course, is one step removed from the situation in Franklin, since in Franklin the homestead deed had actually arrived at the clerk's office within the statutory period for setting apart the homestead exemption.
The debtor, however, argues that under Rule 5:5, Rules of the Supreme Court of Virginia, a document mailed to the clerk by certified or registered mail qualifies as having been "filed" as of the date it was mailed. Even if "filing" were synonymous with "admission to record," the cited rule only applies to certain pleadings required to be filed in the Supreme Court of Virginia in connection with an appeal to that court and expressly does not apply to pleadings required to be filed in the trial court:
Rule 5:5. Extension of Time; Filing by Mail.
(b) Any document required to be filed with the clerk of this Court, or filed in the office of the clerk of this Court, shall be deemed to be timely filed if it is mailed postage prepaid to the clerk of this Court by registered or certified mail and if the official receipt therefor be exhibited upon demand of the clerk or any party and it shows mailing within the prescribed time limits. This rule does not apply to documents to be filed in the office of the clerk of the trial court or clerk of the Virginia Workers' Compensation Commission or clerk of the State Corporation Commission.
(emphasis added). The debtor has cited to no authority, and the court is aware of none, that would treat a deed as "admitted to record" simply because it had been placed into the hands of the United States Postal Service for ultimate delivery to the clerk of court. Such a construction of the statutory phrase "admitted to record" would create havoc with respect to the examination of land titles, since a title examiner could never rule out the possibility that an adverse conveyance was in the mail en route to the courthouse. Since a homestead deed is required to be "recorded as deeds are recorded," and since there is no provision in Virginia law for an instrument to be treated as [a]dmitted to record "in advance of its actual receipt by the clerk" regardless of the method of transmission "the court must conclude that the homestead deed was not "admitted to record" "and the homestead exemption thereby "set apart"" until September 10, 1997. That date falling outside the five-day period from the date of the meeting of creditors, the claimed homestead exemption" not having been timely perfected under Virginia law" must be disallowed. Va. Code Ann. § 34-17; Zimmerman v. Morgan, supra.
IV.
There remains the issue of whether some of the items "in particular, the automobiles" listed on the homestead deed are exempt under some other provision of Virginia law. On the amended schedule of exempt assets, the debtor claimed both of the automobiles exempt under the Virginia "poor debtor's" exemption, Va. Code Ann. § 34-26. This statute exempts from creditor process certain enumerated categories of assets, most of which, although not all, have dollar limits. No particular action, such as the recording of a homestead deed, is required in order to claim the exemption. In re Meyer, 211 B.R. 203, 207 (Bankr. E.D. Va. 1997). Relevant to the specific exemptions claimed by the debtor, § 34-26 provides as follows:
With respect to the $100 "cash on hand" listed on the homestead deed but not on the schedules, there is no other colorable basis under Virginia law under which it may be exempted, even putting aside the debtor's failure to claim the exemption on his schedules.
The exemption for wedding and engagement rings, and for a family Bible, for example, have no dollar limits.
In addition to the exemptions provided in Chapter 2 (§ 34-4 et seq.) of this title, every householder shall be entitled to hold exempt from creditor process the following enumerated items:
(4a) All household furnishings including, but not limited to, beds, dressers, floor coverings, stoves, refrigerators, washing machines, dryers, sewing machines, pots and pans for cooking, plates, and eating utensils, not to exceed $5,000 in value.
* * *
(8) A motor vehicle, not held as exempt under [the tools of the trade exemption], owned by the householder, not to exceed $2,000 in value . . . .
(emphasis added). The debtor, as noted above, claimed $2,000 of the value of each of two automobiles as exempt under § 34-26(8). The statute, however, plainly allows the exemption of only one's motor vehicle. Furthermore, the excess value of the 1989 Taurus over and above the $2,000 exemption provided by § 34-26(8) cannot be claimed as an exempt Household furnishing "under § 34-26(4a), as the debtor has attempted to do here. Not only does an automobile not fall within the ordinary or common definition of a Household furnishing," the fact that the General Assembly created a separate express exemption for automobiles in § 34-26(8) argues strongly that it did not intend for an interest in an automobile to be separately exempted under § 34-26(4a) as a "household furnishing." See, Abt v. Household Finance Co. (In re Abt), 2 B.R. 323 (Bankr. E.D. Pa. 1980) (motor vehicle cannot be treated as "household goods" for the purpose of lien avoidance under § 522(f), Bankruptcy Code); Ramey v. Dominion Nat'l Bank (In re Ramey), 45 B.R. 562, 563 (Bankr. W.D. Va. 1984) ("An automobile has never been held to constitute Household goods'").
V.
For the foregoing reasons, the court concludes that the Crestar Bank checking account, the $100 cash on hand, and the 1989 Ford Taurus have not been properly claimed as exempt, and those exemptions are disallowed. The exemption of the 1986 Montero is allowed, as are the household goods and furnishings, the male clothing, and the computer equipment listed on the amended schedule C. A separate order has been entered consistent with this opinion.