- Category: Judge Karlin
- Published on 01 September 2008
- Written by Judge Karlin
Signed and entered on 08/21/2008
Case: 06-40887 Doc #: 121 Filed: 08/21/2008
SIGNED this 21 day of August, 2008.
Page 1 of 28
JANICE MILLER KARLIN
UNITED STATES BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
In re: )
DAVID HALL and LINDA M. HALL, ) Case No. 06-40887
) Chapter 7
MEMORANDUM OPINION AND ORDER PARTLY GRANTING, AND PARTLY
DENYING, TRUSTEE’S MOTION FOR SUMMARY JUDGMENT ON
TRUSTEE’S MOTION FOR TURNOVER AND OBJECTION TO EXEMPTIONS
This matter is before the Court on the Trustee’s Motion for Summary Judgment.1 The
Trustee is seeking summary judgment on her Motion for Turnover of Real Estate and
Personal Property,2 in which she requested the turnover of specific personal property noted
below, as well as turnover of any other property due Debtors as a result of the death of Linda
Hall’s father within 180 days of the filing of bankruptcy. The Trustee also seeks summary
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judgment on her Objection to Debtors’ Homestead Exemption.3 Both parties have briefed
the issues, and the Court is ready to rule. This is a core proceeding over which this Court has
jurisdiction to enter a final order,4 and the parties stipulate to jurisdiction and proper venue.
I. FINDINGS OF FACT
The Trustee’s summary judgment motion properly sets forth facts as to which she
contends no material issue of fact exists, and Debtors have agreed to that statement of facts.
Accordingly, based largely on the facts set out in the Trustee’s motion, the Court makes the
following findings of fact.
Debtors, David Hall and Linda M. Hall (“Debtors”), filed a Petition under Chapter 7
of the Bankruptcy Code on September 6, 2006. On the date of filing, Debtors jointly owned
a 1.33 acre tract of land within the city limits of Centralia, Kansas. The land is commonly
known as 1104 4th Street and 1104 ½ 4th Street. Debtors claim that most of the above
described land is exempt, except for the West 81 feet.5 The subject real estate is valued at
$40,000, and there is a mortgage balance of $7,500.
4 28 U.S.C. § 157(b)(2)(B) and (E) (core proceeding), 28 U.S.C. § 1334 and 11 U.S.C. §
5Debtors’ original Schedule C- Property Claimed as Exempt simply lists “1104 4th Street,
City of Centralia, Nehama County, Kansas,” making no reference to the size of the tract.
Debtors’ Amended Schedule C, filed May 9, 2007 (well after the Trustee objected to the original
Schedule C on the basis that the tract exceeds one acre within the city) provides the real estate
description for the tract, which contains the phrase “containing 1.33 acres, more or less.”
Amended Schedule C then states “most of the above tract is claimed as exempt; see
attachment”). The attachment contains a surveyor-type drawing of the tract with a handwritten
note that states “[t]his tract claimed as exempt, except for the West 81 feet.”
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Situated on these 1.33 acres is a house and a mobile home. The house, which has an
address of 1104 4th Street, was occupied by Linda Hall and two children on the date of
filing. David Hall did not occupy that house on the date of filing, nor was he permitted to
do so due to a substantiated finding of child abuse that prohibited him from then residing
with his family. Instead, on the date of filing, David Hall lived in a mobile home also located
on the 1.33 acres. This property was listed as 1104 ½ 4th Street in the telephone book.
On the date of filing, Debtors owned certain items of non-exempt real and personal
property, many of which items were not initially listed on Debtors’ bankruptcy schedules.
Some of the property not listed included a riding lawn mower and key, window air
conditioning units in campers and buildings, firearms, two campers (instead of the one
listed), one above-ground pool with pool cover, pump and various equipment and
accessories, and real estate lots.6
On September 24, 2006, just 18 days after this bankruptcy was filed, and thus clearly
within 180 days of the bankruptcy filing, Linda Hall’s father, Robert J. Frederick, Sr., passed
away. As a result of her father’s death, Linda Hall became entitled to receive the following
6The Trustee’s Statement of Fact No. 12 indicates that Debtors owned, on the date of
filing, registered and non-registered dogs and dog crates; one boat, motor and trailer and cover;
two vehicles (thought to be Blazers); a tank with sprayer and trailer; and go carts. In support of
this allegation, the Trustee cites page 3 of the Pretrial Order (Doc. 101). However, that same
page of the Pretrial Order (page 7) clearly indicates that Debtors dispute that the Trustee is
entitled to turnover of this property, mostly on the basis that Debtors did not own the property,
but were holding it for third parties. Therefore, even though Debtors state their general
agreement with the Trustee’s statement of facts, the Court finds that the statement of fact
suggesting that Debtors are actually the owners of this discrete property is not supported by any
evidence currently in the record.
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property: certificates of deposit totaling $38,947.86; a one-fifth interest in a house located
in Topeka, Kansas; U.S. bonds in the amount of $3,731.33; proceeds of two life insurance
policies in the amounts of $6,651.19 and $4,005.75, respectively; an individual retirement
account (IRA) in the amount of $2,858.54; Linda Hall’s $4,386.45 pro rata share of certain
personal property of the decedent, which was sold at auction; and Linda Hall’s $370.74 pro
rata share of the decedent’s checking account. All of the property received by Linda Hall as
a result of her father’s death, with the exception of her share of the proceeds from the sale
of her father’s tangible personal property and his checking account, was received by her as
a payable-on-death (POD) beneficiary or by means of some similar form of beneficiary
designation. In other words, she did not receive the rest of the funds as a result of being the
beneficiary of a will, or by intestate succession.
On October 17, 2006, the Trustee filed the previously referenced Motion for Turnover
of Real Estate and Personal Property and Objection to Debtors’ Homestead Exemption.
Almost seven months later, on May 9, 2007, Debtors filed Amended Schedules A through
C, as well as an Amended Statement of Financial Affairs.7 The Trustee timely objected to
the Amended Schedule C and Homestead Exemption.8 Debtors have never again amended
Schedule C to claim any inherited property as exempt.
II. STANDARD FOR SUMMARY JUDGMENT
7Docs. 50 and 51.
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Summary judgment is appropriate if the moving party demonstrates that there is “no
genuine issue as to any material fact” and that it is “entitled to a judgment as a matter of
law.”9 In applying this standard, the Court views the evidence and all reasonable inferences
therefrom in the light most favorable to the nonmoving party.10 An issue is “genuine” if
“there is sufficient evidence on each side so that a rational trier of fact could resolve the issue
either way.”11 A fact is “material” if, under the applicable substantive law, it is “essential to
the proper disposition of the claim.”12
The moving party bears the initial burden of demonstrating an absence of a genuine
issue of material fact and entitlement to judgment as a matter of law.13 In attempting to meet
that standard, a movant that does not bear the ultimate burden of persuasion at trial need not
negate the other party's claim; rather, the movant need simply point out to the court a lack
of evidence for the other party on an essential element of that party's claim.14
If the movant carries this initial burden, the nonmovant who would bear the burden
of persuasion at trial may not simply rest upon its pleadings; the burden shifts to the
9Fed. R. Civ. P. 56(c). Fed. R. Civ. P. 56(c) is made applicable to adversary proceedings
pursuant to Fed. R. Bankr. P. 7056.
10Lifewise Master Funding v. Telebank, 374 F.3d 917, 927 (10th Cir. 2004).
11Thom v. Bristol-Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003) (citing Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
12Id. (citing Anderson, 477 U.S. at 248).
13Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
14Id. (citing Celotex, 477 U.S. at 325).
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nonmovant to go beyond the pleadings and “set forth specific facts” that would be admissible
in evidence in the event of trial from which a rational trier of fact could find for the
nonmovant.15 To accomplish this, sufficient evidence pertinent to the material issue “must
be identified by reference to an affidavit, a deposition transcript, or a specific exhibit
Finally, the court notes that summary judgment is not a “disfavored procedural
shortcut;” rather, it is an important procedure “designed to secure the just, speedy and
inexpensive determination of every action.”17
A. Trustee’s Objection to Debtors’ Homestead Exemption
The Trustee objects to Debtors’ homestead exemption on two bases: 1) because
Debtors reside in two different structures located on the same 1.33 acre tract, and 2) because
the tract of land exceeds one acre within the city limits. Only one acre within a city is
exempt under Kansas law.18 The Trustee claims that David Hall’s homestead is limited to
15Id. (citing Fed. R. Civ. P. 56(e)).
16Diaz v. Paul J. Kennedy Law Firm, 289 F.3d 671, 675 (10th Cir. 2002).
17Celotex, 477 U.S. at 327 (quoting Fed. R. Civ. P. 1).
18In the Pretrial Order, at pages 6-7, Debtors indicate that if their land is larger than one
acre, they will surrender the portion of their land necessary to bring it within the provisions of
the Kansas homestead exemption, as both the mobile home and the house can fit within one acre.
But Debtors’ own amended Schedule C admits the land contains 1.33 acres, and their response to
the summary judgment motion indicates agreement with the Trustee’s Fact No. 3, which
indicates that the tract encompasses 1.33 acres.
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the mobile home he occupied on the land on the date of filing, and that he cannot exempt his
one-half interest in the house that his wife and children occupy. Similarly, the Trustee claims
that Linda Hall’s homestead is limited to the house that she and the children occupy, and that
she cannot exempt her one-half interest in the mobile home that her husband occupied on the
date of filing. The Trustee thus seeks turnover to the estate of a one-half interest in the
mobile home and a one-half interest in the house.
Under Kansas law, the party claiming homestead protection has the burden of proving
the establishment of the homestead.19 In bankruptcy, however, Federal Rule of Bankruptcy
Procedure 4003 governs exemptions, and subsection (c) of Rule 4003 provides: “In any
hearing under this rule, the objecting party has the burden of proving that the exemptions are
not properly claimed.” This means that the claimed exemption is presumed to be valid, and
the Trustee then has the burden of producing evidence to rebut the presumption. If she does
so, the burden thereafter shifts back to the debtor to come forward with evidence to
demonstrate that the claimed exemption is proper.20
To determine the validity of Debtors’ claimed homestead exemption, the Court must
look to applicable Kansas law.21 The Kansas Constitution provides for a homestead
19See Beard v. Montgomery Ward & Co., 215 Kan. 343, 344 & 349 (1974); Bellport v.
Harder, 196 Kan. 294 (1966).
20In re Robinson, 295 B.R. 147, 152 (10th Cir. BAP 2003).
21Id. (citing In re Lampe, 331 F.3d 750, 754 (10th Cir. 2003)).
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exemption of one acre within the city limits.22 The Kansas legislature’s statutory version is
a bit more expansive; K.S.A. 60-2301 provides, in pertinent part:
A homestead to the extent of 160 acres of farming land, or of one acre within the
limits of an incorporated town or city, or a manufactured home or mobile home,
occupied as a residence by the owner or by the family of the owner, or by both the
owner and family thereof, together with all the improvements on the same, shall be
exempted from forced sale under any process of law, and shall not be alienated
without the joint consent of husband and wife, when that relation exists. . . .
“In determining whether a debtor is entitled to claim an exemption, ‘the exemption laws are
to be construed liberally in favor of exemption.’”23
The Court must decide whether the fact that one of the two co-debtors, David Hall,
occupied a different structure (a mobile home) on the same 1.33 acre tract where the house
(in which his co-debtor wife and children reside) is situated impairs the homestead exemption
on the house and/or the mobile home for one or both Debtors. In essence, the Trustee argues
that by moving into the mobile home located on the same land that was previously
considered part of the family homestead, David Hall effectively abandoned his homestead
interest in the house, and created a separate homestead in the mobile home to which Linda
Hall owned a one-half interest. In addition, the Trustee claims that Linda Hall may claim the
house as her separate homestead, but that David Hall’s one-half interest in “her” house is not
exempt. Debtors disagree, claiming that the entire tract, consisting of both the house and the
22See Kansas Const., Art. 15, §9.
23In re Lampe, 331 F.3d at 754 (quoting In re Ginther, 282 B.R. 16, 19 (Bankr. D. Kan.
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mobile home, constitutes one homestead that they may jointly claim as exempt—admittedly
with the exception of that portion of the land exceeding one acre.
Not surprisingly, the Court has been unable to locate any cases directly on point. The
Kansas Supreme Court has, however, had several opportunities to address the impact the use
of a separate structure located on the same tract of land as the house in which one or more
family members reside has on a homestead claim. For example, in Hoffman v. Hill,24 the
Kansas Supreme Court allowed a judgment debtor to claim as exempt two adjoining lots
where a building was erected on one lot with a porch extending over to the second lot. The
building was used as both a residence for his family and a hotel and boarding house. The
defendant also maintained a separate building on the second lot that was used in connection
with the family, hotel and boarding house, along with other out-buildings that were located
on both lots. The court held:
. . . it makes no difference that the homestead or a part thereof may be used for
some other purpose than as a homestead, where the whole of it constitutes only
one tract of land not exceeding in one acre the amount permitted to be
exempted under the homestead exemptions laws, and where the part claimed
as not part of the homestead has not been totally abandoned as a part thereof
by making it, for instance, another person’s homestead or a part thereof, or by
using it or permitting it to be used in some other manner inconsistent with the
homestead interests of the husband and wife.25
2447 Kan. 611 (1892).
25Id. at 613-14.
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Similarly, in Layson v. Grange,26 the Kansas Supreme Court held that where a debtor owned
three lots that combined to include less than one acre, and also contained a carpenter shop
that had been converted to rooms that were rented out to another family, the entire tract of
land could be exempted under Kansas homestead laws.
The Kansas Supreme Court also held, in Iola Wholesale Grocery Co. v. Johnson,27
that two contiguous lots that totaled less than one acre qualified as a homestead even though
the owner, who resided with his family on the property, also operated a grocery store from
a separate building on the property. Finally, in Barten v. Martin,28 the Kansas Supreme Court
held that where the debtor resided with his family in a house on a lot that also included a
separate building that was rented out to a dentist, the entire property retained its exempt
status under Kansas homestead laws.29
These holdings of the state’s highest court make clear that the inclusion of a separate
structure on a debtor’s homestead that is not used as the residence for the debtor or his family
2648 Kan. 440 (1892).
27114 Kan. 89 (1923).
28133 Kan. 329 (1931) (holding that to show loss of exemption of part of homestead,
circumstances must show an intent to abandon that part as a homestead, and the use to which
portion of premises is put should be inconsistent with homestead character to warrant exclusion
of that part).
29In addition to the cases decided by the Kansas Supreme Court dealing with separate
structures on the same tract of land, two Kansas bankruptcy courts have also recently held that
where debtors own a duplex and reside in one side of the property, while leasing out the other
half of the duplex, they are nevertheless entitled to claim the entire duplex as exempt under
Kansas law. In re McBratney, 2007 WL 2684072 (Bankr. D. Kan. 2007) and In re McCambry,
327 B.R. 469 (Bankr. D. Kan. 2005).
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does not disqualify the exemption, and result in some of the real estate being subject to
execution by creditors. Although the facts of these cases, again, are not directly on point, this
Court firmly believes the Kansas courts would find it wholly inconsistent to protect the
homestead exemption on a separate building used as a hotel or rented to non-family
members, but deny protection when a separate building on the protected tract is occupied by
one of the members of the family.
That said, the Kansas cases relied on by this Court all have one factor in common that,
if not present in this case, could result in a ruling favorable to the Trustee. In each of the
cases cited, the separate properties in question were at all times under the control of the
debtor and were only leased or rented out to tenants. There was never any intent by the
debtor in those cases to abandon that portion of the property that contained the additional
structures or to treat any portion of the homestead as the permanent homestead of another
individual. In fact, in Hoffman v. Hill, the Kansas Supreme Court specifically limited its
holding by stating that the homestead exemption remained attached to the entire property as
long as “the part claimed as not part of the homestead has not been totally abandoned as a
part thereof by making it, for instance, another person’s homestead or a part thereof, or by
using it or permitting it to be used in some other manner inconsistent with the homestead
interests of the husband and wife.”30
30Hoffman, 47 Kan. at 613-14 (emphasis added).
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The facts agreed to by the parties infer that David Hall once lived in the house located
on the 1.33 acres, which house he holds in joint tenancy with Linda Hall, and that he
occupied that house as his homestead for some unknown period of time before he moved to
the mobile home.31 Unless David Hall intended to abandon the house as his homestead, and
to establish the mobile home as his new homestead, the Court finds that the mobile home is
simply part of the parties’ joint homestead, much like the separate buildings held to be
exempt by the Kansas Supreme Court in the cases cited above. Conversely, if David Hall
did intend to and did abandon the family home as his homestead, and instead intended to and
did establish the mobile home as his new homestead, the Court would likely find that the
mobile home was no longer part of Debtors’ joint homestead, and must be treated separately.
Once a homestead is established, two elements are required to find that the homestead
has been abandoned: removal from the property and an intent not to return.32 There is no
question in this case that David Hall was removed from the house; Debtors agree to that fact.
Apparently he was required to live elsewhere by court order.33 However, it is unclear
31The facts do not clearly establish that David Hall once lived in the house and could
have claimed it as his homestead, but there is no indication that the family once lived elsewhere
or that David Hall never lived in the house. In the event the Trustee wishes to contest this fact at
trial, she is free to do so and the Court’s assumption that David Hall once lived in the house will
not be treated, at trial, as a binding factual determination.
32In re Snook, 134 B.R. 424, 425-26 (D. Kan. 1991) (citing In the Matter of the Estate of
Fink, 4 Kan. App. 2d 523 (1980)).
33The only evidence cited by the Trustee in support of her Fact No. 9 is a document
entitled “Notice of Substantiation.” A review of that document does not reflect any order
requiring Debtor David Hall to leave the family home and live elsewhere. But the stated fact,
itself, does so indicate and Debtors agreed with the stated fact, so the Court deems the fact
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whether he was forever barred from returning to the family home, whether he had no intent
to return to the house in the future, or whether he considered the move out of the house into
the mobile home to be a permanent arrangement. The agreed “fact” indicates that he was
required to vacate the house due to a finding of child abuse, but the agreed facts do not
establish whether such bar from residing in the home was permanent, or was only to last for
a term of months or years, such as when the child reached the age of majority and left the
family home, or after the parties received counseling.
Similarly, in order to establish a homestead, a party must intend to occupy it as a
homestead and must actually occupy it as a homestead within a reasonable time.34 The
owner’s intention is critical in determining whether a homestead has been established.35 The
record does not indicate whether David Hall intended to establish a new and permanent
homestead in the mobile home, or whether it was simply viewed as a temporary residence
until he was able to either move on to another location or move back into the family home.36
34Id. at 425 (citing Security State Bank of Scott City v. Coberly, 5 Kan. App. 2d 691
35Id. (citing Smith v. McClintock, 108 Kan. 833 (1921)).
36In Debtors’ response to the Trustee’s motion for summary judgment (Doc. 114), they
note that David Hall has now returned to the main family home. Debtors’ Response at p.2. This
does not prove that as of the date of the filing of this bankruptcy, Debtor David Hall did not have
an intent to abandon the main family home, but may be a factor to consider at trial. Further,
because this “fact” has not been presented to the Court by way of interrogatories, admissions on
file, affidavits or other sworn testimony, as required by Rule 56 of the Federal Rules of Civil
Procedure, as incorporated into the Bankruptcy Rules by Rule 7056, this argument is insufficient
to create a fact upon which the Court may rely for purposes of this summary judgment motion.
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This second use would be extremely similar to the uses that have previously been authorized
by the Kansas Supreme Court, as outlined above.
The Court finds these two factual issues to be critical in deciding the Trustee’s
objection to the homestead exemption. If David Hall intended to abandon his claim to a
homestead in the family home and intended to instead establish a new and permanent
homestead in the mobile home situated on the same land, then the Court would likely find,
under the language contained in Hoffman v. Hill, that Mr. Hall had abandoned that portion
of his original homestead and that it is no longer part of the original homestead held jointly
by Debtors. However, if Mr. Hall never intended to abandon the family home as his
homestead, or did not intend to create a new homestead in the mobile home, then the Court
would likely find that the Kansas Supreme Court cases discussed in this opinion dictate a
finding that the mobile home is simply part of the family homestead—the same as if the
mobile home had been rented out to a tenant or used as a boarding house.
The Court finds that resolution of this genuine issue of material fact is necessary
before judgment can be entered for either party. In addition, the Court notes that even if it
were to find that the mobile home constituted a separate and distinct homestead, as the
Trustee advocates, the Trustee’s attempt to recover a one-half interest in what would then be
two separate homesteads may not be the appropriate remedy. The Trustee’s position
presumes that two spouses, as joint debtors, can each claim a separate piece of real property
as their exempt homestead. The Court is unaware of any Kansas law that would allow
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married debtors to claim separate homestead exemptions on different pieces of property.37
The result of a finding that Debtors have established two separate homesteads could be that
they are forced to choose which homestead to exempt, while leaving the other homestead
unprotected from the Trustee.38 Before reaching any conclusion on this legal issue, however,
the Court must conduct an evidentiary hearing on the issue of whether or not two separate
homesteads even exist under the pertinent facts.
B. Trustee’s Motion for Turnover of Property
The Trustee’s Motion for Turnover also seeks turnover of various items of personal
property, which property came into Debtors’ possession in various ways. In her summary
judgment motion, however, the Trustee only seeks judgment regarding property received by
Debtors following the death of Linda Hall’s father about two weeks after the filing of this
bankruptcy. The property at issue can generally be divided into three categories: proceeds
from her father’s life insurance policies, property acquired as the beneficiary of a POD or
similar account, and property acquired through inheritance of personal property from her
37This Court confronted this issue in In re Johnson, 2003 WL 23811676 (Bankr. D. Kan.
2003), but that case was ultimately resolved on other grounds.
38If the Court were to treat this property as two separate homesteads and allow each
Debtor to claim a separate homestead in this case, as the Trustee proposes, the Court also notes
that the West 81 feet of the property could likely be claimed as exempt by one or the other
Debtor, as each Debtor would be entitled to claim up to one acre of land along with the
structures located on that land. In other words, it is conceivable that a total of two acres of land
could be claimed as exempt if Debtors are forced to treat the mobile home as a separate
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1. Life Insurance Proceeds
The first objection by the Trustee relates to proceeds of two insurance policies on the
life of Ms. Hall’s father. Her share of those policies is $10,656.94. The commencement of
a voluntary petition for relief under Chapter 7 of the Bankruptcy Code automatically creates
an estate. Property of the estate is broadly defined to include “all the following property,
wherever located and by whomever held:
(1) ... all legal or equitable interests of the Debtor in property as of the
commencement of this case.”39
Congress has expanded the scope of property included in the bankruptcy estate, pursuant to
§ 541(a)(5), to include certain property acquired by a debtor within the 180 day period
following the filing of the petition.
Section 541(a)(5)(C) specifically provides that property acquired by a debtor as a
beneficiary of a life insurance policy within 180 days of the filing of a bankruptcy petition
is property of the bankruptcy estate. Because the parties have stipulated that the property
was acquired within 180 days, there is no dispute about the life insurance proceeds being
included in the bankruptcy estate.
3911 U.S.C. § 541(a). This case was filed after October 17, 2005, when most provisions
of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became effective.
All future statutory references are thus to the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, 11 U.S.C. §§ 101 - 1532 (2005), unless otherwise specifically noted.
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Debtors do not contest the fact that the proceeds are part of the estate, but instead
claim that the proceeds can be exempted under Kansas law.40 K.S.A. 40-414(a)(4) provides
that “the policy and its reserves, or the present value, shall inure to the sole and separate
benefit of the beneficiaries named in the policy and shall be free from . . . the claims and
judgments of the creditors and representatives of any person named as a beneficiary in the
policy of insurance.” This statutory provision has been interpreted to exempt not only the
cash value of an insurance policy from the creditors of a beneficiary, but the proceeds from
that policy as well.41
Accordingly, although it is clear that these life insurance proceeds could be exempted
under Kansas law,42 Debtors have made no effort to actually claim them as exempt.
“Generally, if the debtor claims property as exempt and ‘a party in interest’ does not object,
that property is exempt from property of the estate.”43 Conversely, as Collier on Bankruptcy
Section 522(b) provides that “notwithstanding section 541 of this title, an individual
debtor may exempt from property of the estate” (emphasis added). Therefore, the
40Kansas is an opt-out state, which means that a debtor’s exemptions are determined by
state law, subject to applicable Bankruptcy Code limitations. See 11 U.S.C. § 522(b)(2) and
41See In re Chadwick, 113 B.R. 540 (Bankr. W.D. Mo. 1990)( holding “the proceeds of
the policy are part of the ‘reserve’ held for future use by the beneficiaries and are therefore
exempt under Kansas law.”) and In re Douglas, 59 B.R. 836 (Bankr. D. Kan. 1986) (holding that
proceeds from a life insurance policy are exempt under Kansas law).
43In re Scrivner, ___ F.3d ___, 2008 WL 3166977 (10th Cir. 2008)(citing 11 U.S.C. §
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exemption must be claimed in order to have it be effective. Otherwise, the exemptible
property will remain property of the estate. 44
Pursuant to Fed. R. Bankr. Proc. 1007(h), debtors who acquire an interest in property
pursuant to § 541(a)(5) are required to file (within ten days after the information becomes
known to them) a supplemental schedule in their Chapter 7 case concerning that property.
At the same time, if any of the property is exemptible, it is expected that the debtor will file
an amended Schedule C to claim whatever exemption to which he might be entitled. But in
this case, Debtors have made no attempt to amend Schedule C to claim the life insurance
proceeds as exempt, despite the fact Debtor’s father died almost two years ago.
Interestingly, the evidence shows that Debtors know they are required to, and in fact
did, file an Amended Schedule C approximately seven months after the Trustee originally
requested turnover of the life insurance proceeds,45 but failed to claim these proceeds as
exempt. Therefore, although the property could be claimed as exempt, it has not been. The
Court thus grants summary judgment to the Trustee as a matter of law in regard to the life
insurance proceeds. Debtors shall forthwith turnover to the Trustee the $10,656.94 in life
Property acquired as the beneficiary of a POD, transfer-on-death
(TOD) deed, or similar beneficiary designation
445 Collier on Bankruptcy ¶ 541.04 (Lawrence P. King ed., 15th ed. rev 2007).
45The amendment sought to exempt the 1973 Bell mobile home which was valued at
$300; Debtors had not originally claimed it as exempt in their originally filed Schedule C. In
addition, the amendment indicated that Debtors were not seeking to exempt the westernmost 81
feet of 1104 4th Street in Centralia, Kansas—presumably to bring their claimed exemption
within the one acre limitation placed on homestead exemptions under Kansas law.
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The second class of property of which the Trustee seeks turnover involves property
that was acquired by Debtors, following the death of Ms. Hall’s father, by way of a POD
beneficiary designation, or some other similar designation. Specifically, the Trustee is
seeking Linda Hall’s share of the net proceeds from the sale of the decedent’s house (which
passed to Linda Hall and her siblings by a TOD deed) in the amount of $8,946.79, certificates
of deposit (which passed to Linda Hall as a POD beneficiary) in the amount of $38,947.86,
U.S. bonds (which passed to Linda Hall as a POD beneficiary) in the amount of $3,731.33,
and the proceeds from an IRA in the amount of $2,858.54 on which she was a named
beneficiary. Debtors argue that this property was not received by “bequest, devise or
inheritance,” as required by § 541(a)(5), and thus does not constitute property of the estate.
Section 541(a)(5), in addition to bringing into the estate life insurance proceeds, also
brings into the estate any property acquired within 180 days of the filing of a petition into the
bankruptcy estate if that property was acquired “by bequest, devise, or inheritance.” This
Court has already considered the meaning of these terms in the case of In re Roth,46 which
dealt with a property interest the debtor acquired in a revocable inter vivos trust upon his
father’s death, within 180 days of the filing of bankruptcy. As the Court indicated in that
case, in the absence of controlling federal law, “property” and “interests in property” are
questions of state law.47 The Bankruptcy Code provides no definition of the terms “bequest,”
46289 B.R. 161 (Bankr. D. Kan. 2003).
47In re Doughman, 263 B.R. 905, 907 (Bankr. D. Kan. 1999).
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“devise” or “inheritance,” thus requiring the Court to look to state law for a definition of
K.S.A. 59-604 suggests that the terms “bequest” and “devise” are limited to the
transfer of property by way of will. Although K.S.A. 59-604 does not provide a definition
of these terms, their use in this statute is certainly consistent with Debtors’ position and does
indicate that, under Kansas law, the terms “devise” and “bequest” involve transfers of
property by way of will.
Similarly, although Kansas law does not directly define the terms “bequest,” “devise”
or “inheritance,” the Court found in In re Roth, and continues to hold, that it is reasonable
that Kansas courts would follow the traditional meaning of these terms, as set forth in
Black’s Law Dictionary. Black’s Law Dictionary provides the following definitions of
“bequest,” “devise” and “inheritance”:
Bequest – a gift by will of personal property;
Devise – a testamentary disposition of land or realty; a gift of real property by the last
will and testament of the donor; and
Inheritance – property which descends to heir on the intestate death of another.48
Based on these definitions, Ms. Hall did not acquire the property by bequest, devise
or inheritance. The property did not pass through intestate succession or by will, but rather
48Black’s Law Dictionary (5th Ed. West Pub. Co. 1979).
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by way of a contractual obligation between Linda Hall’s father and the holder of those
accounts.49 Therefore, § 541(a)(5)(A) does not bring this property into the estate.
The Trustee argues, however, that Linda Hall nevertheless had a contingent interest
in the proceeds from those accounts on the date the petition was filed, and that the broad
language contained in § 541(a)(1) is sufficient to bring that interest into the estate. Although
there appears to be no controlling precedent on this issue in the Tenth Circuit, this issue was
considered by the United States Bankruptcy Court for the Central District of Illinois in In re
Taylor.50 In Taylor, the Court held, without analysis but apparently relying on Illinois law,
that “while the Debtor’s interest in the Payable on Death Funds was a contingent interest at
the time of her filing for bankruptcy, it was none the less an interest that is included as an
asset of the Debtor’s Chapter 7 estate pursuant to the sweeping language of § 541(a)(1).”51
Although directly on point, the Court finds In re Taylor to not be persuasive because
the issue of whether Linda Hall acquired a property right in the POD accounts or the TOD
deed prior to her father’s death must be decided under Kansas law.52 Only after it has been
49See Snodgrass v. Lyndon State Bank, 15 Kan. App. 2d 546, 552 (1991). See also
K.S.A. 9-1215 (stating that POD accounts are not testamentary transfers), K.S.A. 59-3507
(stating that TOD deeds are not testamentary transfers), K.S.A. 59-3513(5) (stating that
individual retirement plans are not testamentary transfers), and 31 C.F.R. § 315.70(c) (stating
that if a U.S. savings bond has filed a beneficiary form, upon the owner’s death the bond will
automatically transfer to the beneficiaries named, rather than going through the decedent’s
502006 WL 1275400 (Bankr. C.D. Ill. 2006).
51Id. at *2.
52In re Doughman, 263 B.R. at 907.
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determined that Debtor actually had a legal or equitable property right in those accounts as
of the date of filing does § 541(a)(1) come into play to bring the property into the estate.
POD accounts in Kansas are authorized by K.S.A. 9-1215. That section provides that
any individual may enter into a written contract with any bank “providing that the balance
of the owner’s deposit account . . . at the time of death of the owner shall be made payable
on the death of the owner to one or more persons . . . .” The statute further provides that
Every contract authorized by this section shall be considered to contain a right
on the part of the owner during the owner’s lifetime both to withdraw funds on
deposit in the account in the manner provided in the contract, in whole or in
part, as though no beneficiary has been named, and to change the designation
of the beneficiary. The interest of the beneficiary shall be considered not to
vest until the death of the owner.”53
This statute was interpreted by the Kansas Court of Appeals in Snodgrass v. Lyndon State
Bank,54 and the court held that “[t]he designated beneficiary acquires no interest in a POD
account until the death of the owner.” It is clear from the language of the Kansas statute that
authorizes POD accounts, as well as Kansas court’s interpretation of that statute, that Debtors
had no interest in the POD account at the date of filing.
Similarly, TOD deeds are authorized by K.S.A. 59-3501 through 59-3507. The
language of the statutes authorizing and governing TOD deeds are quite similar to POD
accounts in that TOD deeds transfer ownership of the interest in the property only upon the
53K.S.A. 9-1215 (emphasis added).
54Snodgrass, 15 Kan. App. 2d at 552 (emphasis added).
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death of the owner,55 they are revokable at any time,56 they do not transfer “any ownership”
until the death of the owner,57 and they are not testamentary in nature.58 Although the Court
did not find a Kansas decision interpreting this statute, because of the similarity of the TOD
statute to the POD statute, which has been interpreted by a Kansas appellate court, this Court
finds that since here the TOD owner (Linda Hall’s father) did not die until after Debtor Linda
Hall filed this bankruptcy petition, she had no interest (contingent or otherwise) at the time
of the filing of that petition.
The Court similarly finds that Linda Hall did not have an interest in the IRA or the
U.S. bonds until the death of her father. Although the Court has been unable to locate any
cases discussing those issues, it nevertheless finds that being the beneficiary of a retirement
account or a U.S. bond does not convey any more interest than being the beneficiary of a
POD account or TOD deed—which this Court has found conveys no interest at all until the
death of the owner.
The Court also finds that the Trustee’s position, that the Debtor had a contingent
interest in these accounts on the date of filing that would bring them into the bankruptcy
estate, would bring the need for the provisions of § 541(a)(5) into question. The Court can
think of no factual or legal basis why the “contingent interest” as a beneficiary of a POD
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account should be included as property of the estate under § 541(a)(1), while a “contingent
interest” as beneficiary of a will would be excluded.
In both cases, the debtor has absolutely no right or access to the property until the
death of the owner, the name of the beneficiary can be changed at any time without recourse,
and the owner of the property can spend the money in any manner he or she chooses, leaving
nothing for the beneficiary at death. If such “contingent interests” are to be included in §
541(a)(1), there is no need to include property obtained by will in § 541(a)(5). In fact,
including such an interest in § 541(a)(1) would expand on what is authorized under §
541(a)(5), because if the interest is property of the estate under § 541(a)(1), there is no limit
on when the debtor’s interest must vest. The 180 day period that applies to property under
§ 541(a)(5) is not applicable to property that is brought into the estate under §
541(a)(1)—meaning a trustee could claim the interest of any debtor who, at the date of filing
their petition, was a potential beneficiary under a POD account or a will, even if the debtor’s
rights to the property did not vest (if ever) until years later.
3. Property inherited by Linda Hall
The third class of property at issue in this case includes Linda Hall’s pro rata share of
her father’s tangible personal property that passed to her by intestate succession. This
property includes her pro rata share in the net proceeds from the sale of her father’s tangible
personal property and her pro rata share of his checking account—which together total
$4,757.30. Debtors stipulate that this property is properly included in the bankruptcy estate
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pursuant to § 541(a)(5) and is not otherwise exempt. Therefore, the Trustee is entitled to
summary judgment in relation to this property, in the amount of $4,757.30.
The Court finds that the Trustee’s Motion for Summary Judgment is granted in part
and denied in part. The Court finds that there is a question of material fact regarding Debtor
David Hall’s intent regarding his homestead interest in the home and mobile home (both of
which are situated on the same acreage). Therefore, the Trustee’s Motion for Summary
Judgment is denied as it relates to that portion of her objection to Debtors’ homestead
The Court finds that there are no questions of fact concerning the property contained
in the Trustee’s Motion for Turnover. Debtors agree that the Trustee is entitled to receive
Linda Hall’s share of the net proceeds from the sale of her father’s tangible personal property
in the amount of $4,386.56 and her share of her father’s bank account in the amount of
$370.74 pursuant to § 541(a)(5)(A), as these amounts were received by Ms. Hall by devise,
bequest or inheritance within 180 days of the filing of their bankruptcy petition. The Court
also finds that the Trustee is entitled to the proceeds from the two life insurance policies
totaling $10,656.94, pursuant to § 541(a)(5)(C), as those amounts were received by Debtor
Linda Halls as a beneficiary of a life insurance policy within 180 days of the filing of the
bankruptcy petition and were never claimed as exempt.
The Court finds that the Trustee is not entitled to Linda Hall’s share of the net
proceeds from the sale of her father’s house in amount of $8,946.79, the certificates of
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deposit in the amount of $38,847.86, the U.S. bonds in the amount of $3,731.33 or the
proceeds from her father’s IRA in the amount of $2,858.54, because she did not have a legal
or equitable interest in that property at the time of the filing of the petition, and the property
did not come to her by way of devise, bequest or inheritance within 180 days of the filing of
the bankruptcy petition.
The Court also notes that pursuant to the Pretrial Order,59 Debtors have agreed to turn
over to the Trustee a riding lawnmower with key, all window air conditioning units in
campers and buildings, all firearms, two campers, one above ground pool, pool cover, and
pump and various equipment and accessories and certain unidentified real estate lots. If that
property has not previously been turned over to the Trustee, Debtors are ordered to do so
The Court, on June 20, 2008, set this matter for trial on September 16, 2008 in the
event the Court did not grant the Trustee’s summary judgment motion. That date is a stacked
evidentiary docket, and the parties will be contacted with the exact time the trial will
commence. That hearing will be used to resolve the issue whether David Hall intended to
and did abandon his homestead interest in the family home, and whether he established a new
homestead in the mobile home located on the land adjacent to the family home. At that
evidentiary hearing, the Court will also hear evidence on that part of the Trustee’s motion for
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turnover of the property that was identified in Paragraph 6 of the Pretrial order as still being
IT IS, THEREFORE, BY THE COURT ORDERED that the Trustee’s Motion for
Summary Judgment is granted in part and denied in part. The Trustee’s motion is granted
to the extent it seeks turnover of Linda Hall’s share of the net proceeds from the sale of her
father’s tangible personal property in the amount of $4,386.56, her share of her father’s bank
account in the amount of $370.74, and the proceeds from the two life insurance policies in
the total amount of $10,656.94. The motion for summary judgment is denied as it relates to
Linda Hall’s share of the net proceeds from the sale of her father’s house in amount of
$8,946.79, the certificates of deposit in the amount of $38,847.86, the U.S. bonds in the
amount of $3,731.33 and the proceeds from her father’s IRA in the amount of $2,858.54, as
the Court finds that property is not property of the bankruptcy estate.
The Court understands that the funds from the certificates of deposit ($38,847.86)
were deposited with the Trustee during the pendency of this matter, and the Trustee is
ordered to return that money to Debtors, minus the $4,386.56, $370.74 and $10,656.94
determined to be estate property.
IT IS FURTHER ORDERED that the Court will conduct an evidentiary hearing on
September 16, 2008 on the Trustee’s Objection to Debtors’ Homestead Exemption and the
60That property is identified as dog crates, boat, motor, trailer and cover, satellite dish,
two vehicles (thought to be Blazers), tank with sprayer and trailer, go-carts and one mobile
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Trustee’s Motion for Turnover to the extent that motion relates to the turnover of any
property not otherwise decided by this opinion.