1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2 IN RE: : CASE NO. 12-09036 (ESL) 3 : DAVID ROMAN RIVERA : 4 | MADELINE QUINONES COLON : CHAPTER 7 5 Debtors 6 7 OPINION AND ORDER 8 This case is before the court upon the Chapter 7 Trustee’s Amended Objection to Claimed 9 || Exemptions (the “Objection”, Docket No. 23) and the Debtors’ Response thereto (Docket No. 26). 10 || Phe Chapter 7 Trustee objects to several claimed exemptions under Puerto Rico law' and requests 11 || the turnover of certain amounts and/or the surplus not allowed under certain exemption statutes. The 12 || Debtors contend the claimed exemptions are proper. For the reasons stated below, the Chapter 7 13 || Trustee’s Objection is granted in part and denied in part. 14 Procedural Background 15 The Debtors filed their voluntary bankruptcy petition on November 9, 2012 (Docket No. 1). 16 || Schedule C, they claimed the following exemptions under Puerto Rico law (Docket No. 1, p. 17): 17 Legal grounds Value of exemption 18 || | Primary residence PR Act No. 195 enacted on $130,000 September 13, 2011, as 19 amended 20 || | Stove $200; Refrigerator $600; 32 L.P.R.A. § 1130(14) $1,050 Microwave $150; Kitchen Utensils 1 $40; Dinnerware $30; Cookware $30 22 |!) Washer and Dryer 32 L.P.R.A. § 1130(14) $200 23 ||| Living Room Set $100; Bedroom 32 L.P.R.A. § 1130(2) $350 Set $100; Chest and Nightstands 24 $150 25 Dinning Room Set $100; Tables 32 L.P.R.A. § 11301) $150 26 || | and Chairs $50 27 28 ' The Debtors claim one exemption under Section 522(b)(3)(C) of the Bankruptcy Code, which may be claimed even when debtors elect state and other nonbankruptcy exemptions. See Subsection (I) of the instant Opinion and Order, infra.
7 || | $30; TV Sound System $100 Mobile Phone $75; Computer 32 L.P.R.A. § 113014) $200 3 $100; Printer $25 Personal Clothes, Shoes, Jewelry 32 L.P.R.A. § 1130(2) $440 pater [eresie! [oe 5 | | Undefined Benefit From Marriott 25 L.P.R.A. § 383 $1 [Sa
. 9 10 On February 15, 2013, the Chapter 7 Trustee filed her Objection to Debtors’ claimed 11 || exemptions (Docket No. 23). She sustains that the Debtors have not demonstrated compliance with 12 || Articles 11 and 12 of Puerto Rico’s Home Protection Act No. 195 enacted on September 13, 2011 13 || (the “2011 PR Home Protection Act”) and therefore the homestead exemption must be denied. In 14 || regards to the stove, microwave, kitchen utensils, dinnerware and cookware, the Chapter 7 Trustee 15 || avers that 32 L.P.R.A. § 1130(14) does not include those specific exemptions. As to the living room 16 || set, bedroom set, chest, nightstands, dining room set, tables, chairs and television set, the Chapter 17 || 7 Trustee argues that the claimed amounts exceed the ones allowed in the pertinent Puerto Rico 1g || statutes, which warrants the exemption to be disallowed or have the excess value turned over to the 19 || bankruptcy estate. The Chapter 7 Trustee further contends that the DVD Player, sound system, 20 || mobile phone, computer or printer are not expressly allowed in 32 L.P.R.A. § 1130(14), that the 91 || Debtors did not sufficiently detail the wearing apparel they claimed exempt, and that they did not 97 || prove that the motor vehicles constitute a working tool, especially since they are retired and 23 || receiving retirement pensions. Finally, in regards to the interests the Debtors claim in the Marriott 24 || San Juan Retirement Plan, the Chapter 7 Trustee argues that the benefits in 25 L.P.R.A. § 383 are 25 || reserved for pensions for disability or death in the line of duty in regards to State Internal Security 26 || and that the Debtors have not established that the proceeds of such retirement plan fit its legislative 27 || purpose. Thus, the Chapter 7 Trustee seeks the turnover of Debtors’ funds in the 401(k) plan. 28 On March 13, 2013, the Debtors filed an Amendment to Schedules to “correct exemptions”
1 || (Docket No. 25). The only “correction” was changing the legal grounds on the Debtors’ benefit 2 || from the Marriott San Juan Retirement Plan from 25 L.P.R.A. § 383 to 11 U.S.C. § 522(b)(3)(C). 3 || Thus, in their new amended Schedule C, Debtors claim the following exemptions and values: 4 Legal grounds Value of exemption 5 ||| Primary residence PR Act No. 195 enacted on $130,000 September 13, 2011, as 6 amended 7 || | Stove $200; Refrigerator $600; 32 L.P.R.A. § 1130(14) $1,050 Microwave $150; Kitchen Utensils 8 || | $40; Dinnerware $30; Cookware 9 $30 Washer and Dryer 32 L.P.R.A. § 1130(14) $200 | | Living Room Set $100; Bedroom —_ | 32 L.P.R.A. § 1130(2) $350 11 || | Set $100; Chest and Nightstands $150 12 Dinning Room Set $100; Tables _| 32 L.P.R.A. § 1130(1) $150 13 |] | and Chairs $50 Television Set $300; DVD Player 32 L.P.R.A. § 113014) $430 14 || | $30; TV Sound System $100 15 ||| Mobile Phone $75; Computer 32 L.P.R.A. § 113014) $200 $100; Printer $25 16 Personal Clothes, Shoes, Jewelry 32 L.P.R.A. § 1130(2) $440 17 || | and Other Apparel 1g || | Undefined Benefit From Marriott 11 U.S.C. § 522(b)(3)(C) $1 San Juan Retirement Plan 19 30 1993 Nissan Pathfinder 32 L.P.R.A. § 1130(6) $897 4 2005 Mitsubishi Montero 32 L.P.R.A.§ 1130(6) $375 22 23 On March 14, 2013, the Debtors filed a Response to [the Chapter 7] Trustee’s Objection 24 || (Docket No. 26). In regards to the personal exemptions claimed under 32 L.P.R.A. § 1130(14) for 25 || the stove, kitchen utensils, dinnerware and cookware, the Debtors sustain that under the liberal 26 || interpretation in which Puerto Rico case law has construed exemptions, the term “home-use 27 || kitchens” includes these kitchen items. As to the amounts of the exemptions claimed over the living 28
1 || room set, bedroom set, chest and nightstands, dining room set, tables and chairs, the Debtors sustain 2 || that they can each claim the full amount afforded in the relevant Puerto Rico statutes because they 3 |] are two joint debtors. The Debtors also argue that the television set, stereo equipment and DVD 4 || Player were also correctly claimed under 32 L.P.R.A. § 1130(14) because although not expressly 5 || mentioned in the statute, they have an intrinsic resemblance to the property allowed as exempt 6 || therein, and thus they should be meant to be included in the exemption scheme. The Debtors further 7 || contend that the wearing apparel and jewelry exemption under 32 L.P.R.A. § 1130(2) is limitlessly 8 || exempted and therefore whether the property is specifically detailed or not, it is completely 9 || exempted regardless. As to the 2005 Mitsubishi Montero and the 1993 Nissan Pathfinder, the 10 || Debtors assert that although 32 L.P.R.A. § 1130(6) does not expressly exempt “motor vehicles”, 11 || Puerto Rico’s Supreme Court has ruled that a liberal construction of the statute must include motor 12 || vehicles. In regards to the Marriott San Juan Retirement Plan, the Debtors allege that because they 13 || changed the legal grounds in their amended Schedule C to 11 U.S.C. § 522(b)(3)(C) the Chapter 7 14 || Trustee’s objection has become moot. Finally, the Debtors aver that their homestead right was 15 || properly claimed because they executed the homestead deed prior to filing their bankruptcy petition, 16 || although the real property is not registered in favor of the Debtors’ at the Property Registry. 17 No further replies were filed. 18 Applicable Law and Analysis 19 || (A) ~— Exemptions in General 20 When a debtor files a bankruptcy petition, all of his/her/its assets become property of the 21 || bankruptcy estate [11 U.S.C. § 541] subject to the debtor’s right to reclaim certain property as 22 || exempt under 11 U.S.C. § 522. See Taylor v. Freeland & Kronz, 503 U.S. 638, 642 (1992). A 23 || property becomes exempt by operation of law when no objections are filed. See 11 U.S.C. § 522(1). 24 || But the mere fact that debtors claim an exemption does not necessarily mean that they are entitled 25 || to it, since there must be compliance with statutory requirements and then an order that effect. See 26 || 9A Am. Jur. 2d Bankruptcy § 1392; In re Gutierrez Hernandez, 2012 Bankr. LEXIS 2735 at *8, 27 || 2012 WL 2202931 at *2 (Bankr. D.P.R. 2012); In re Rolland, 317 B.R. 402, 412 (Bankr. C.D.Cal. 28 || 2004); In re Colvin, 288 B.R. 477, 483 (Bankr. E.D.Mi. 2003); Carlucci & Legum v. Murray (In re
1 | Murray), 249 B.R. 223, 230 (E.D.N.Y. 2000). Exemptions should be liberally construed in 2 || furtherance of the debtor’s right to a “fresh start”. In re Gutierrez Hernandez, 2012 Bankr. LEXIS 3 || 2735 at *5, 2012 WL 2202931 at * 2; In re Newton, 2002 Bankr. LEXIS 2089 at *7, 2002 WL 4 34694092 at *3 (B.A.P. 1* Cir. 2002); Christo v. Yellin Un re Christo), 228 B.R. 48, 50 (B.A.P. 1* 5 Cir. 1999). A “fresh start”, however, does not translate to a “head start”. In re Goldberg, 59 B.R. 6 || 201, 208 (Bankr. N.D. Okla. 1986). “The basis for exemption laws is that by providing a debtor to 7 || retain a minimum level of property, the debtor and his or her family will not be completely destitute 8 || and thus a burden to society.” Id. at 208. 91 (B) How to Claim Exemptions under II U.S.C. § 522 10 “In order to be effective, a debtor must specifically describe the property claimed as exempt 11 and inform the value.” In re Gutierrez Hernandez, 2012 Bankr. LEXIS 2735 at *5, 2012 WL 12 || 2202931 at * 2. Also see Nancy C. Dreher and Joan N. Feeney, Bankruptcy Law Manual, Volume 13 |} 1 § 5:43 (2012-2), p. 1015. Thus, a debtor is required to list the property claimed as exempt on the 14 || schedule of assets that must be filed with the bankruptcy petition. See 11 U.S.C. § 522(1); Fed. Rs. 15 || Bankr. P. 1007(b), 1007(1)(b) & 4003. A party in interest or the trustee may file an objection to the 16 || list of property claimed as exempt within 30 days after the meeting of creditors held under 11 U.S.C. 17 || § is concluded or within 30 days after any amendment to the list or supplemental schedules 18 | is filed, whichever is later. Fed. R. Bank. P. 4003(b)(1). If an interested party fails to object to a 19 || claimed exemption within the time allowed, the subject property will be excluded from the 20 || bankruptcy estate even if the exemption’s value exceeds the statutory limits. 11 U.S.C. § 522(1); 21 || Taylor v. Freeland & Kronz, 503 U.S. 638, 643-644 (1992). In the instant case, there is no dispute 22 || that the Chapter 7 Trustee’s Objection is timely. 23 In Schwab v. Reilly, 130 S.Ct. 2652, 2668 (2010), the Supreme Court held that the time 24 || limits for objecting to an exemption do not apply if the claimed exemption is “valid on its face”. 25 || Schwab’s analysis rests on the determination that Section 522(a)(3)(B) defines the “‘property’ a 26 || debtor may ‘clai[m] as exempt’ as the debtor’s ‘interest’ —up to a specified dollar amount-— in the 27 || assets described in the category, not as the assets themselves.” Id. at 2661-2662 (citations omitted). 28 || Under the Schwab doctrine, treating the entries as exemptions of an in-kind interest would violate
1 || the Bankruptcy Code’s limits and fail to account for the distinction between exemptions that include 2 || a monetary cap and those that allow debtors to exempt property regardless of value. Id. at 2663, 3 || n.10. Thus, Schwab mandates that exemptions be claimed “in a manner that makes the scope of the 4 || exemption clear”. Id. at 2668. In Massey v. Pappalardo (In re Massey), 465 B.R. 720 (B.A.P. 1* 5 |] Cir. 2012), the debtor did not assign a monetary value to the claimed exemption for his car and 6 || residence in their Schedule C, but rather claimed “100% of FMV [Fair Market Value]”. Id. at 721. 7 || The Trustee timely challenged those claimed exemptions alleging that they were improper. Id. at 8 || 722. The Massey court adopted the analysis in In re Salazar, 449 B.R. 890 (Bankr. N.D.Tx. 2011), 9 || where the court posed two possible solutions to dealing with this type of claimed exemptions. First, 10 || the court may hold an evidentiary hearing on the value of the debtor’s exemptions. At such a 11 || hearing, the debtor has the initial burden of showing a plausible basis for the claim that “100% of 12 || FMV” of an asset falls within the statutory limit on the amount that may be exempted under Section 13 || 522. In accordance with Schwab, if the objection is overruled, the asset claimed will no longer be 14 || part of the estate, but if the objection is sustained, the debtor must forfeit the value in excess of the 15 || statutory allowance. The second approach is for the court to “simply declare that an objection to an 16 || exemption claim of ‘100% of FMV? is a facially valid objection because the debtor has failed to 17 || claim a set amount as contemplated by the exemption statute allowing the exemption.” Salazar, 449 18 || B.R. at 897. In this situation, the court will sustain the objection “unless the debtor amends his 19 || exemptions to claim a dollar amount for his exempt interest in the property.” Id. at 897. The 20 || Salazar court adopted this approach [Id. at 902], and the Massey court held that said approach “best 21 || recognizes the reasoning in Schwab”. Massey, 465 B.R. at 728. Under either scenario, Fed. R. 22 || Bankr. P. 4003(c) mandates that “the objecting party has the burden of proving that the exemptions 23 || are not properly claimed.” 24 “In any event, the debtor should clearly describe the object and its value especially where 25 || the statute limits the dollar amount of the exception, or where the debtor owns more than one of the 26 || objects.” Jay M. Zitter, J.D., Jewelry and Clothing as Within Debtor’s Exemptions Under State 27 || Statutes, 44 A.L.R. 6" 481, § 3 (2008). 28
1 (C) Exemptions when Co-Debtors File a Joint Bankruptcy Petition 2 “In joint cases, Section 522 [of the Bankruptcy Code] applies separately to each debtor 3 pursuant to subsection (m), subject to the limitation set forth in subsection (b), which was added by 4 the 1984 amendments to the Code.” Allan N. Resnick and Henry J. Sommes, 4 Collier on 5 Bankruptcy, ¶ 522.04[5] (16th ed. 2013). Also see In re Gentile, 483 B.R. 50, 54 (Bankr. D. Mass. 6 2012). Notwithstanding, “[w]henever a husband and wife both become debtors under the Code 7 through voluntary or involuntary proceedings, and their cases are jointly filed and jointly 8 administered, they must both elect the same ‘slate’ of exemptions”, meaning that “if one spouse 9 elects the federal Code exemptions, the other spouse must also elect federal exemptions”. Allan N. 10 Resnick and Henry J. Sommes, 4 Collier on Bankruptcy, ¶ 522.04[6] (16th ed. 2013). 11 (D) Exemptions Claimed on Stove, Microwave, Kitchen Utensils, Dinnerware and Cookware 12 The Debtors claim exemptions on the stove, microwave, kitchen utensils, dinnerware and 13 cookware under 32 L.P.R.A. § 1130(14). The Chapter 7 Trustee objects to these exemptions 14 alleging that “there is no mention in [that statute] as to a stove, microwave, kitchen utensils, 15 dinnerware or cookware” and therefore they must be disallowed (Docket No. 23, p. 4). The Debtors 16 contend that “kitchen items utilized for home-use are exempt”, that 32 L.P.R.A § 1130(14) “exempts 17 common iceboxes (refrigerators) expressly designed for ‘home use’ and wash machines ‘for home 18 uses’”, and that under Puerto Rico case law “statutes exempting certain properties from execution 19 are remedial in character [which] must be construed liberally in favor of the debtor” (Docket No. 20 26, pp. 2-3). 21 Article 249(14)2 of Puerto Rico’s Code of Civil Procedure provides as follows: 22 In addition to the homestead exempted by the Homestead Law, the following property belonging to an actual resident of this Commonwealth of Puerto Rico shall be likewise 23 exempted from execution, except as herein otherwise provided: ... 24 (14) Common iceboxes expressly designed and commercially known for home use; 25 26 2 As of the date this Opinion and Order was drafted, there is a pending Bill filed by Puerto Rico’s House of Representatives (P. de la C. 356) to amend Article 249 of Puerto Rico’s Code of Civil Procedure to increase the 27 value of the exemptions afforded therein and update the types of properties exempted. The Bill was filed on January 4, 2013 and referred to the Commission of Legal Affairs on January 17, 2013, where it is still pending. See 28 http://www.oslpr.org. 7 1 home-use kitchens; wash machines for home use whose cash price does not exceed two hundred (200) dollars; radio receiving sets whose cash price does not exceed one 2 hundred (100) dollars; television sets for home use whose cash price does not exceed two hundred and fifty (250) dollars per unit, and electric irons for home use, are 3 likewise exempted from attachment and execution. 32 L.P.R.A § 1130(14). 4 Puerto Rico’s Supreme Court has ruled that the exemptions afforded in Article 249 of Puerto 5 Rico’s Code of Civil Procedure are repairing in nature, and thus its statutes must be construed in the 6 most liberal light to effectuate the humanitarian purpose of the lawmaker. Laguna v. Quiñones, 23 7 P.R.R. 358, 360-361, 23 D.P.R. 386, 389 (1916). “[E]ven if any doubt [regarding exemptions] could 8 be harbored ... the doubt should be resolved in favor of the exemption.” Quintana v. Superior Court, 9 104 P.R. Off. Trans. Part I 26, 28, 104 D.P.R. 18, 20 (1975). It then follows that the terms “tools 10 or implements” and “other equipment” used in 32 L.P.R.A. §§ 1130(4) and (6), respectively, are 11 applicable to include properties that would otherwise be excluded under a strict technical 12 interpretation. Laguna v. Quiñones, 23 P.R.R. at 361, 23 D.P.R. at 389; Quiñones v. Gutierrez, 29 13 P.R.R. 718, 722-723, 29 D.P.R. 772, 777 (1921). 14 Pursuant to the liberal trend upon which Puerto Rico exemptions must be construed, the court 15 finds that the Debtors’ claimed exemptions on the stove, kitchen utensils, dinnerware and cookware 16 are comprised in the term “home-use kitchens” in 32 L.P.R.A. § 1130(14) up to the amount of $200 17 for each co-debtor, for a total of $400. Consequently, those exemptions are allowed. 18 (E) Exemptions Claimed on the Living Room Set, Bedroom Set, Chest and Nightstands 19 In the instant case, each co-debtor claims as exempt the living room set ($100), bedroom set 20 ($100), chest and nightstands ($150) under 32 L.P.R.A § 1130(2). The Chapter 7 Trustee objects 21 because the total amounts exceed the ones allowed in the statute. 22 Article 249(2) of Puerto Rico’s Code of Civil Procedure provides as exempt: 23 Necessary household, table and kitchen furniture belonging to the judgment debtor, including one sewing machine in actual use in the family, or belonging to a woman, and 24 stove, furniture, beds, bedding and bedsteads, not exceeding in value two hundred (200) dollars, wearing apparel, hanging pictures, oil paintings and drawings, drawn or painted 25 by any member of the family, and family portraits and their necessary frames, provisions actually provided for individual or family use sufficient for one month; one 26 cow with her suckling calf, and one hog with her suckling pigs. 32 L.P.R.A. § 1130(2). 27 Article 249(2), supra, does not provide a monetary cap on living room sets, chests or 28 nightstands. The $200 cap established therein only applies to “bedding and bedsteads”. The only 8 1 limitation on the exemptions of the remaining properties in Article 249(2), supra, is that the they be 2 “necessary”. Because the case at bar is a joint petition, each co-debtor is entitled to claim his/her 3 own exemptions under 11 U.S.C. § 522(m). Consequently, the court finds that the exemptions 4 claimed on the living room set, chest and nightstands are reasonable within the “necessary” scope 5 required in 32 L.P.R.A. § 1130(2) and are therefore allowed. 6 (F) Exemptions Claimed on the Dining Room Set, Tables and Chairs 7 Each co-debtor claims as exempt the dining room set ($100), tables and chairs ($50) under 8 32 L.P.R.A § 1130(1). The Chapter 7 Trustee objects because the total amounts exceed the ones 9 allowed in the statute. 10 Article 249(1) of Puerto Rico’s Code of Civil Procedure provides as exempt: 11 Chairs, tables, desks and books, to the value of one hundred (100) dollars, belonging to the judgment debtor. 32 L.P.R.A. § 1130(1). 12 13 Because the case at bar is a joint petition, each co-debtor is entitled to claim his/her own 14 exemptions under 11 U.S.C. § 522(m). Consequently, the amounts claimed for those exemptions 15 do not exceed the limits of the statute and are therefore allowed. 16 (G) Exemptions Claimed on the Television Set, DVD Player, Sound System, Mobile Phone, Computer and Printer 17 The Debtors claim as exempt the television set ($300), stereo equipment ($100), DVD Player 18 ($30) mobile phone ($75), computer ($100) and printer ($25) under 32 L.P.R.A. § 1130(14). The 19 Chapter 7 Trustee objects alleging that, except for the TV Set, for which a total value is set at $250, 20 the remaining properties are not expressly mentioned in that statute. 21 Article 249(14) of Puerto Rico’s Code of Civil Procedure provides as exempt: 22 Common iceboxes expressly designed and commercially known for home use; 23 home-use kitchens; wash machines for home use whose cash price does not exceed two hundred (200) dollars; radio receiving sets whose cash price does not exceed one 24 hundred (100) dollars; television sets for home use whose cash price does not exceed two hundred and fifty (250) dollars per unit, and electric irons for home use, are 25 likewise exempted from attachment and execution. 32 L.P.R.A. § 1130(14). 26 In regards to the TV Set, contrary to the Chapter 7 Trustee’s assertion, because the case at 27 bar is a joint petition, each co-debtor is entitled to claim his/her own exemptions under 11 U.S.C. 28 § 522(m). Consequently, the amount claimed per debtor for the TV Set does not exceed the limits 9 1 of the statute and is therefore allowed. 2 As to the stereo equipment ($100), DVD Player ($30) mobile phone ($75), computer ($100) 3 and printer ($25), the Debtors aver that because exemptions must be liberally construed3 and because 4 these properties have “an intrinsic resemblance in their nature”, these properties should be meant 5 to be included in the exemption scheme” (Docket No. 26, p. 4, § (d)). 6 The court finds that the stereo equipment bears an intrinsic resemblance to the “radio 7 receiving set whose cash price does not exceed one hundred (100) dollars” in 32 L.P.R.A. § 8 1130(14), and because each debtor is allowed to claim $100 pursuant to 11 U.S.C. § 522(m), it does 9 not exceed the limits of the statute and is therefore allowed. 10 Notwithstanding, the remaining claimed exemptions, to wit, the DVD Player ($30), mobile 11 phone ($75), computer ($100) and printer ($25), are not allowed or mentioned in Article 249(14) 12 of Puerto Rico’s Code of Civil Procedure nor do they have any “intrinsic resemblance in their 13 nature” to the properties afforded in the statute. Thus, the exemptions claimed on those properties 14 are denied. 15 (H) Exemptions Claimed on Wearing Apparel and Jewelry 16 The Debtors claim as exempt personal clothes, shoes, jewelry and other apparel in the 17 amount of $440 ($220 per co-debtor) under 32 L.P.R.A. § 1130(2). The Chapter 7 Trustee objects 18 claiming that they “should be disallowed for the reason that the Debtors did not sufficiently detail 19 the value of the group of items claimed” and furthermore, a jewelry exemption is not allowed in the 20 statute (Docket No. 23, p. 5, § (f)). The Debtors reply that in the meetings of creditors they 21 “testified regarding all the information submitted in the voluntary petition”, and that the Chapter 7 22 Trustee “had the opportunity to investigate concerning Debtors’ properties” and yet she did not 23 (Docket No. 26, pp. 4-5, § (e)). Furthermore, they also sustain that under 32 L.P.R.A. § 1130(2), 24 “the property is limitlessly exempted” and that “it is of no significance whether the property has 25 been specifically detailed or not, it is completely exempted regardless” (Docket No. 26, p. 5, § (e)). 26 “According to some courts, a debtor may not hold any ornamental jewelry as ‘wearing 27 28 3 Debtors cite Quiñones v. Gutierrez, supra, to support that assertion. 10 1 || apparel’, but some exemptions have been allowed in this respect. A statute may explicitly provide 2 || that necessary wearing apparel does not include jewelry of any type other than wedding rings.” 31 3 || Am. Jur. 2d Exemptions § 135. To determine whether to classify “jewelry” as exempt “wearing 4 || apparel”, courts may inquire whether the jewelry is properly characterized as ornamentation or a 5 |] nonexempt substantial investment, as well as whether the jewelry has great sentimental value. In 6 || re Westhem, 642 F.2d 1139, 1140 (9" Cir. 1981) (holding that the engagement ring had acquired 7 || sentimental value and was not just another “expensive ornament”). Accordingly, exempt wearing 8 || apparel may include articles such as an engagement diamond ring or a watch. See In re Goldberg, 9 | 59 B.R. at 208 (holding that a watch was exempt from the estate as wearing apparel). To determine 10 || what is reasonably sufficient or of such value as to serve a need or purpose to come within a 11 || ‘necessary and proper wearing apparel’ exemption, a court must consider whether an item’s value 12 || is more than the value of less expensive utilitarian items that would serve the same function. In re 13 || Lebovitz, 360 B.R. 612, 622 (B.A.P. 6" Cir. 2007); Los Angeles Finance Co. v. Flores, 110 Cal. 14 || App. 2d Supp. 850, 856 (1952) (“[t]he determination of whether or not a certain article is exempted 15 || in the hands of a debtor under the term “necessary wearing apparel” involves a determination of 16 || whether or not under all the circumstances that article is necessary to be worn by that debtor’’). 17 || Thus, the jewelry’s value may determine whether it is “necessary and proper” wearing apparel. In 18 || re Peterson, 280 B.R. 886, 890-891 (Bankr. S.D. Ala. 2001). The court may also determine whether 19 || or not a debtor’s jewelry is necessary or proper wearing apparel for one’s social, business, or 20 || professional engagements that are in keeping with the debtor’s habits. In re Lebovitz, 360 B.R. at 21 || 620 (“it cannot be gainsaid that debtors require ‘necessary and proper wearing apparel’ to be 22 || employed and support their families. According to the definition of “necessaries” set forth by the 23 || Tennessee Supreme Court, debtors may need “necessary and proper wearing apparel” to attend 24 || social, business or professional engagements which are suitable to their “means, condition, and 25 || habits of life.”) Other courts have also considered whether the items claimed as exempt were 26 || acquired and used as apparel, or as an investment. In re Mims, 49 B.R. 283, 288 (Bankr. E.D.N.C. 27 || 1985); In re Leech, 171 F. 622, 626 (6" Cir. 1909). “Jewelry and watches must be intended as 28 || wearing apparel and not retained principally to demonstrate that debtor has achieved a ‘certain level 11
1 || of wealth.’” In re Peterson, 280 B.R. at 890 (citations omitted). “When an item is solely designed 2 || to enhance prestige or status of its owner, then the item is not necessary and proper wearing 3 || apparel.” In re Hendrick, 45 B.R. 965, 972 (Bankr. M.D. La. 1985). 4 Article 249(2) of Puerto Rico’s Code of Civil Procedure provides as exempt the following: 5 Necessary household, table and kitchen furniture belonging to the judgment debtor, including one sewing machine in actual use in the family, or belonging to a woman, and 6 stove, furniture, beds, bedding and bedsteads, not exceeding in value two hundred (200) dollars, wearing apparel’, hanging pictures, oil paintings and drawings, drawn or 7 painted by any member of the family, and family portraits and their necessary frames, provisions actually provided for individual or family use sufficient for one month; one 8 cow with her suckling calf, and one hog with her suckling pigs. 32 L.P.R.A. § 1130(2) (emphasis added). 9 10 Puerto Rico case law has not defined “wearing apparel” within the context of 32 L.P.R.A. 11 § 1130(2). Notwithstanding, Article 249 of Puerto Rico’s Code of Civil Procedure stems from 12 || Article 690 of California’s Code of Civil Procedure’, Cal. Code Civ. Proc. § 690, and Article 3542 13 || of Idaho’s Code of Civil Procedure®. See the annotations in 32 L.P.R.A. § 1130; Lamboglia v. Junta 14 || Escolar, 15 D.P.R. 318, 323 (1909) (adopting California’s case law to interpret Article 249 of Puerto 15 16 1 * The Spanish version of 32 L.P.R.A. § 1130(2) provides as exempt “vestidos”, which translates into 7 English as “clothes”, which does not imply jewelry or other wearing apparel. Notwithstanding, because Article 18 249(2) of Puerto Rico’s Code of Civil Procedure finds its origin in Article 690 of California’s Code of Civil Procedure and Article 3542 of Idaho’s Code of Civil Procedure, infra, the court will analyze those statutes and 19 jurisprudence to interpret Puerto Rico’s. See Article 13 of Puerto Rico’s Civil Code, 31 L.P.R.A. § 13 (“In case of discrepancy between the English and Spanish texts of a statute passed by the Legislative Assembly of Puerto Rico, 20 the text in which the same originated in either house, shall prevail in the construction of said statute, except in the following cases: (a) If the statute is a translation or adaptation of a statute of the United States or of any State or 2] Territory thereof, the English text shall be given preference over the Spanish.”) 92 ° Although Article 690 of California’s Code of Civil Procedure was repealed in 1983, its old text is the one with the most resemblance to the current version of Article 249 of Puerto Rico’s Code of Civil Procedure, which was 23 || enacted in 1904. 24 6 Although the annotations in 32 L.P.R.A. § 1130 state that Article 249 of Puerto Rico’s Code of Civil Procedure also derives from Article 3542 of Idaho’s Code of Civil Procedure, this court could not find such statute. 25 || As of 1978, Idaho’s personal property exemptions are governed by Idaho Code § 11-605 (Exemptions of personal property and disposable earnings subject to value limitations). Prior to that, Idaho’s exemptions were governed by 26 || Section 6920 of Idaho’s Code of Civil Procedure. See McMillan v. United States Fire Ins. Co., 48 Idaho 163 (1929). Current Idaho Code § 11-605(1)(b) exempts “to the extent of a value not exceeding seven hundred fifty dollars 27 ($750) on any one (1) item of property and not to exceed a total value of seven thousand five hundred dollars ($7,500) ... [i]f reasonably held for the personal use of the individual or a dependent, wearing apparel, animals, 28 books, and musical instruments”. 12
1 Rico’s Code of Civil Procedure). 2 Former Article 690(2) of California’s Code of Civil Procedure exempted from execution or 3 attachment “necessary household, table, and kitchen furniture belonging to the judgment debtor, 4 including one sewing-machine, stove, stovepipes and furniture, wearing-apparel, beds, bedding and 5 bedsteads, hanging pictures, oil-paintings and drawings drawn or painted by any member of the 6 family, and family portraits and their necessary frames, provisions and fuel actually provided for 7 individual or family use, sufficient for three months, and three cows and their suckling calves, four 8 hogs and their suckling pigs, and food for such cows and hogs for one month; also one piano, one 9 shotgun and one rifle.” In re Estate of Millington, 63 Ca. App. 498, 500 (Court of Appeals 10 California, 3rd App. Dist. 1923). In interpreting that exemption statute, the Court of Appeals for the 11 Third Appellate District of California determined that the word “necessary” applied to “wearing 12 apparel”. Id. at 501. It further reasoned that: 13 While no general rule can be drawn from the foregoing conflicting decisions, it may be said that they generally recognize that wearing apparel may include something more 14 than mere clothing. In many of them the value of the article claimed has been given weight, and logically so; because it is neither usual nor appropriate for one who is 15 unable to pay his debts to wear expensive ornaments, and such ornaments, therefore, are not considered “necessaries” in the sense in which the word is used in exemption 16 statutes. Watches are so generally worn and considered necessities by persons of every financial condition that, under a liberal construction of section 690, it is reasonable to 17 presume that the legislature intended to include them as necessary wearing apparel. The same may be said as to ornaments of a character and value generally worn by persons 18 of small income or little property. It is not to be presumed, however, that the legislature intended to exempt expensive diamonds worn as mere ornaments. The purpose of 19 exemption laws is to save debtors and their families from want, not to enable them to wear luxurious ornaments at the expense of their creditors. In re Estate of Millington, 20 63 Ca. App. at 504 (citations omitted). 21 Likewise, former Section 6920 of Idaho’s Code of Civil Procedure7 declared as exempt the 22 “[n]ecessary household, table and kitchen furniture belonging to the judgment debtor, including one 23 sewing machine in actual use in a family or belonging to a woman, stoves, stovepipe and stove 24 furniture, beds, bedding and bedsteads, not exceeding in value $300; wearing apparel, hanging 25 pictures, oil paintings and drawings, drawn or painted by any member of the family, and family 26 portraits and their necessary frames; provisions actually provided for individual or family use 27 28 7 See footnote 6, supra. 13 1 || sufficient for six months; two cows with their sucking calves and two hogs with their sucking pigs.” 2 || McMillan v. United States Fire Ins. Co., 48 Idaho at 167. 3 Although this court could not find Idaho case law interpreting the extent of the “wearing 4 || apparel” within the context of the repealed personal property exemption statute, current Idaho Code 5 || § 11-605(2) provides that “[a]n individual is entitled to exemption of jewelry, not exceeding one 6 || thousand dollars ($1,000) in aggregate value, if held for the personal use of the individual.” 7 The court concludes that the phrase “wearing apparel” includes jewelry for the exemption 8 || afforded in Article 249 of Puerto Rico’s Code of Civil Procedure, supra. Notwithstanding, because 9 |] “wearing apparel” is subjected to the condition of “necessary”, the court adopts the reasoning in In 10 || re Estate of Millington: “the word ‘necessary’ does not limit wearing apparel to that which is 11 || indispensable, but it is sufficiently flexible to include things which are usual and appropriate for the 12 || reasonable comfort and convenience of a debtor, although they may not be absolutely necessary for 13 || mere subsistence.” 63 Ca. App. at 501. The court also adopts the reasoning in In re Peterson, 280 14 || B.R. at 890-891, inasmuch as the jewelry’s value may determine whether it is “necessary and 15 || proper” wearing apparel. 16 In the instant case, the Debtors have not described with specificity the jewelry they claim 17 || exempt nor its specific face value, for they accumulated the claimed $440 under “personal property, 18 || shows, clothes, jewelry and other apparel”. See Amended Schedule C, Docket No. 25, p. 3. The 19 || Chapter 7 Trustee objects for lack of specificity and because jewelry is not an allowed exemption 20 || (Docket No. 23, p. 5). The court partially agrees with the Chapter 7 Trustee in that the Debtors’ 21 || claimed exemption on jewelry does not provide sufficient information to determine their value nor 22 || if they are usual and appropriate for the reasonable comfort and convenience ofa debtor. The value 23 || of the claimed jewelry is essential to determine the need or purpose of the property and whether the 24 || property is a “necessary and proper wearing apparel” under the scope of a less expensive utilitarian 25 || items that would serve the same function. In re Lebovitz, 360 B.R. at 622; Los Angeles Finance Co. 26 || v. Flores, 110 Cal. App. 2d Supp. at 856. Thus, an evidentiary hearing is necessary to establish the 27 || value of the claimed jewelry and to determine if it is necessary and proper. The same reasoning 28 || applies to the exemptions claimed on the Debtors’ personal clothes and shoes. 14
Interest in Undefined Benefit from Marriott San Juan Retirement Plan 2 Although the Debtors initially claimed all their exemptions under Puerto Rico law (Docket 3 || No. 1, p. 17), they subsequently amended their Schedule C to claim an undefined benefit from 4 || Marriott San Juan Retirement Plan under the federal exemption scheme afforded in 11 U.S.C. § 5 | 522(b)(3)(C) (Docket No 25, p. 3). 6 All states, including Puerto Rico for bankruptcy purposes*, have exemption laws that permit 7 || the retention of certain properties beyond the reach of an individual’s creditor. See Hon. Nancy C. 8 || Dreher, Hon. Joan N. Feeney and Michael S. Stepan, Esq., Bankruptcy Law Manual, Volume 1 § 9 | 5:34 (2012-2), p. 987. In fact, “[u]nder prior [bankruptcy] law, exemptions available to debtors in 10 || bankruptcy cases were determined entirely under non bankruptcy law” and “debtors were limited 11 || to the exemptions available in the state of their domicile”. Alan N. Resnick & Henry J. Sommer, 12 || 4-522 Collier on Bankruptcy §] 522.02 (16" ed. 2013) citing H.R. Rep. No. 595, 95" Cong., 1* Sess. 13 || 360 (1977). Also see the Former Bankruptcy Act § 6 and Hon. Nancy C. Dreher, Hon. Joan N. 14 || Feeney and Michael S. Stepan, Esq., Bankruptcy Law Manual, Volume | § 5:34 (2012-2), p. 987. 15 || Currently, there is a “dual exemption scheme in Section 522, affording two exemption systems for 16 || debtors unless a state declines to permit the dual system by opting out of the federal bankruptcy 17 || exemption system.” Hon. Nancy C. Dreher, Hon. Joan N. Feeney and Michael S. Stepan, Esq., 18 || Bankruptcy Law Manual, Volume 1 § 5:34 (2012-2), p. 987, citing 11 U.S.C. § 522(b)(2). Also see 19 || In re Pérez Hernandez, 473 B.R. 496, 499-500 (Bankr. D.P.R. 2012), subsequently abrogated on 20 || other grounds by In re Pérez Hernandez, 487 B.R. 353 (Bankr. D.P.R. 2013). 21 Although Section 522(b)(1) of the Bankruptcy Code provides for the election of either 22 || federal or state exemptions, “the debtor still is not permitted to pick and choose several state law 23 || exemptions and several federal bankruptcy exemptions; the debtor must choose one scheme of 24 || exemptions.” Hon. Nancy C. Dreher, Hon. Joan N. Feeney and Michael S. Stepan, Esq., Bankruptcy 25 || Law Manual, Volume 1 § 5:35 (2012-2), p. 990. In other words, federal exemptions and state 26 || exemptions are generally mutually exclusive. Furthermore, Section 522(b)(1) of the Bankruptcy 27 28 See 11 U.S.C. § 101(52). 15
1 Code also mandates that even when a joint petition is filed by a husband and wife, “one debtor may 2 not elect to exempt property [under state law] and the other debtor elect to exempt property [under 3 federal law]. If the parties cannot agree on the alternative to be elected, they shall be deemed to 4 elect [state law], where such election is permitted under the law of the jurisdiction where the case 5 is filed.” 11 U.S.C. § 522(b)(1). 6 Notwithstanding, even when a debtor chooses state and other nonbankruptcy exemptions, 7 he/she may still claim nontaxable retirement funds under Section 522(b)(3)(C) of the Bankruptcy 8 Code “to the extent that those funds are in a fund or account that is exempt from taxation under 9 Section 401, 403, 408, 408A, 414, 414, 457 or 501(a) of the Internal Revenue Code of 1986.” 11 10 U.S.C. § 522(b)(3)(C). Also see Hon. Nancy C. Dreher, Hon. Joan N. Feeney and Michael S. 11 Stepan, Esq., Bankruptcy Law Manual, Volume 1 § 5:36 (2012-2), p. 991. 12 In the instant case, there is no evidence of compliance with Section 522(b)(3)(C) of the 13 Bankruptcy Code nor have Debtors demonstrated that the fund or account where they keep the $1 14 claimed exemption is tax-exempted under the pertinent sections of the Internal Revenue Code, as 15 mandated by 11 U.S.C. § 522(b)(3)(C). Consequently, an evidentiary hearing is warranted for 16 Debtors’ claimed exemption for their Interest in Undefined Benefit from Marriott San Juan 17 Retirement Plan under 11 U.S.C. § 522(b)(3)(C). 18 (J) The 1993 Nissan Pathfinder and 2005 Mitsubishi Montero 19 The Debtors assert that although 32 L.P.R.A. § 1130(6) does not expressly exempt “motor 20 vehicles”, Puerto Rico’s Supreme Court has ruled that a liberal construction of the statute must 21 include motor vehicles like their 1993 Nissan Pathfinder and 2005 Mitsubishi Montero (Docket Nos. 22 25, p. 3, and 26, p. 5). 23 Article 249(3) of Puerto Rico’s Code of Civil Procedure provides as exempt the following: 24 Two (2) oxen, two (2) horses, or two (2) mules, and their harness; and one cart, wagon, dray or truck by the use of which a cartman, drayman, truckman, huckster, peddler, 25 hackman, teamster or other laborer habitually earns a living; and one horse with vehicle and harness, or other equipment used by a physician, surgeon or minister of the gospel, 26 in making his professional visits, with food for such oxen, horses or mules for one month. 32 L.P.R.A. § 1130(6). 27 28 In Quiñones v. Gutierrez, supra, Puerto Rico’s Supreme Court ruled that the word 16 1 “equipment” used in Article 249(3) of Puerto Rico’s Code of Civil Procedure, supra, “following the 2 idea of a liberal interpretation ... must refer to any other means by which a physician makes his 3 rounds.” 29 P.R.R. at 721, 29 D.P.R. at 775. It further found that “while [32 L.P.R.A. § 1130(6)] 4 does not use ‘or other vehicle’ it does say ‘or other equipment’, and these words in their connection 5 must mean automobile, because the one horse vehicle and harness described in the statute are 6 already the equipment of a physician to attend to his patients.” 29 P.R.R. at 723, 29 D.P.R. at 777. 7 Following the liberal interpretation of Puerto Rico exemption statutes established in Laguna 8 v. Quiñones, supra, and the inclusion of automobiles under 32 L.P.R.A. § 1130(6) pursuant to 9 Quiñones v. Gutierrez, supra, within the scope of the statute, the court finds that both automobiles 10 (one for each co-debtor) are allowed as exempt as long as the Debtors demonstrate that the 11 automobiles are essential to conduct their professional responsibilities, if any9, which warrants an 12 evidentiary hearing. 13 (K) The Homestead Exemption 14 The Debtors claim a homestead exemption on their primary residence located at Jardines de 15 Carolina I 37, Calle I, Carolina, PR 00987, consisting of a concrete house with 3 bedrooms and 1 16 bathroom (299 squared mts.) under the 2011 PR Home Protection Act. See Amended Schedule C, 17 Docket No. 25, p. 3. 18 The Chapter 7 Trustee’s objection to the homestead exemption is not at all clear. She alleges 19 that in this case Articles 9 and 11 were not complied with pre-petition. “Articles 9 and 11 of the PR 20 Home Protection Act distinguish between real properties that are registered at the Property Registry 21 and those that are not. The methods for claiming the homestead exemption in both instances are 22 different. In cases where the real property is registered at the Property Registry, Article 9 governs 23 the procedure by which homestead is claimed. In cases where the real property is not registered at 24 25 9 The Chapter 7 Trustee asserts, without making reference to any docket or document, that the Debtors are 26 “retired and receiving retirement pensions” (Docket No. 23, p. 7). Notwithstanding, the Debtors have informed the court that co-debtor David Roman-Rivera is currently a sous-chef at Luxury Hotels International of PR (Hotel Ritz 27 Carlton San Juan), where he has been working for the past 14 years, earning monthly gross wages in the amount of $3,992.73 as of the petition date, while his wife, co-debtor Madeline Quiñones-Colon, is a homemaker with no 28 income (Schedule I, Docket No. 1, p. 25). 17 1 the Property Registry or where the declaration of homestead has not yet been recorded or annotated, 2 Articles 11 and 12 will govern. ... If the real property is registered, [the debtor] must show 3 pre-petition compliance with Article 9 of the 2011 PR Home Protection Act. If the real property is 4 not registered, the debtor must submit with the bankruptcy petition the sworn statement required in 5 Article 12 of the PR Home Protection Act, but instead of declaring that the real property was a 6 principal residence before the service of process of foreclosure, [the debtor] must declare that the 7 real property was his/her pre-petition principal residence.” In re Pérez Hernández, 487 B.R. at 368. 8 The Chapter 7 Trustee does not state whether or not the Debtors’ real property in this case is or not 9 registered at the Puerto Rico Property Registry even though she carries the burden to do so under 10 Fed. R. Bankr. P. 4003(c). 11 The Debtors aver that their real property is registered at the Puerto Rico Property Registry 12 but not to their names, and that they executed a public deed no. 6 before Notary Public Luis R. 13 Nuñez Martinez (the “Homestead Deed”) to have their homestead right registered at the Property 14 Registry on November 5, 2012, that is, five days prior to filing their bankruptcy petition on 15 November 9, 2012. See Docket Nos. 1 and 26, p. 6. There is no evidence in the record as to 16 whether or not the Debtors actually filed that the Homestead Deed before the Property Registry pre 17 or post petition, if at all, nor to whose name the real property is currently registered nor any 18 explanation whatsoever as to why the Debtors did not correct or update the registration of their 19 primary residence before filing for bankruptcy. Therefore, an evidentiary hearing is warranted to 20 determine the allowance of the homestead exemption claimed by the Debtors. 21 Conclusion 22 In view of the foregoing, the court allows the Debtors’ claimed exemptions on the stove, 23 kitchen utensils, dinnerware and cookware under 32 L.P.R.A. § 1130(14) up to the amount of $200 24 for each co-debtor, for a total of $400. In addition, the court finds that the exemptions claimed on 25 the living room set, chests or nightstands are reasonable within the “necessary” scope required in 26 32 L.P.R.A. § 1130(2) and are therefore allowed. Also allowed are the exemptions claimed on the 27 dining room set, tables and chairs under 32 L.P.R.A § 1130(1), and the exemptions claimed on the 28 TV Set and the stereo equipment under 32 L.P.R.A. § 1130(14). 18 1 The court denies the exemptions claimed on the DVD Player, mobile phone, computer and 2 || printer under 32 L.P.R.A. § 113(14). 3 The remaining claimed exemptions on wearing apparel, jewelry, automobiles, homestead and 4 || the interest in undefined benefit from Mariott San Juan Retirement Plan are scheduled for an 5 || evidentiary hearing to be held on September 17, 2013 at 2:00 p.m. Five (5) days prior to the hearing 6 || each party shall file proposed findings of fact and conclusions of law. Each finding of fact shall 7 || make reference to either a document to be substantial as exhibits, or a witness. 8 SO ORDERED. 9 In San Juan, Puerto Rico, this 10" day of June, 2013. 10
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