KSB

Judge Karlin

09-41059 Wilkinson (Doc. # 55)

In Re Wilkinson, 09-41059 (Bankr. D. Kan. Mar. 5, 2010) Doc. # 55

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SO ORDERED.
SIGNED this 05 day of March, 2010.


________________________________________
JANICE MILLER KARLIN
UNITED STATES BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: )
)
JOHN EDWARD WILKINSON, JR. and ) Case No. 09-41059
JENNIFER LYNNE WILKINSON, )
)
Debtors. )

__________________________________________)

MEMORANDUM OPINION AND ORDER SUSTAINING TRUSTEE’S
OBJECTION TO EXEMPTIONS EXCEPT AS TO PERSONAL TOOLS

This matter is before the Court on the Trustee’s Objection to Debtor’s Exemptions.1 The
Trustee has objected to Debtors’ attempt to claim a skid loader with trailer, personal tools, and red
iron for a metal building as exempt under the Kansas tools of the trade exemption found at K.S.A.
60-2304(e). Debtors contend that the property is used in Mr. Wilkinson’s occupation as a stone

1Doc. 9.

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crusher, and therefore the exemption is proper. The parties have submitted stipulations of fact2 and
have fully briefed this issue.

This is a core matter over which this Court has jurisdiction.3

I. FINDINGS OF FACT
The Court makes the following findings of fact based upon the stipulations of the parties,
which the Court adopts. Debtors filed their petition under Chapter 7 of the Bankruptcy Code on June
29, 2009. In connection with the filing of the petition, Debtors filed their Statement of Financial
Affairs (“SOFA”) and bankruptcy schedules, all of which were signed under penalty of perjury.
Debtors indicated on Schedule C that they were exempting a skid loader with trailer valued at
$5,000, personal tools valued at $700, and red iron for a metal building valued at $1,500, all pursuant
to K.S.A. 60-2304(e), which is the Kansas tools of the trade exemption.

Debtors contend that Mr. Wilkinson has performed work as a stone-crusher for
approximately five years. Approximately three years ago, he started working for Mid-States
Materials, LLC (“Mid-States”). Mid-States is a private company engaged in the stone-
crushing/breaking and broken stone mining business.

Mr. Wilkinson is a foreman at Mid-States. In this occupation, he uses his stone-crushing
knowledge and skills to oversee and supervise new workers. He also engages in the stone-crushing
work using the company’s equipment and his own tools. In the winter, when Mr. Wilkinson is not
working for Mid-States, he claims to operate a side stone-crushing business and uses the skid loader,

2Docs. 37 and 40 contain the stipulation and amended stipulation, Doc. 44 contains additional exhibits Debtors
added after the amended stipulation was filed, to which the Trustee has now stipulated, and Doc. 48 contains three
exhibits that were intended to be a part of the amended stipulation (Exhibits A, B, and C). Both counsel have agreed
to rely solely on these stipulations/exhibits, and that there is no need for an evidentiary hearing.

328 U.S.C. § 1334 and 28 U.S.C. § 157(b)(2)(B) (core proceeding).

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trailer, red iron and tools for that purpose. Debtors indicate that the income earned from the side
business is used to support the family during the winter months.

The Trustee disputes that the skid loader and red iron are regularly used as tools of the trade
by Debtor in his primary job or occupation. In support, the Trustee relies upon Debtors’ own
sworn—and consistent— statements contained in their tax returns and in their bankruptcy schedules
and SOFA. On their SOFA, Debtors indicated that Mr. Wilkinson’s gross income “from
employment, trade, profession or from operation of the debtor’s business, including part-time
activities either as an employee or in independent trade or business” for the years 2007 and 2008 was
$43,850.00 and $46,538.00, respectively. A review of Mr. Wilkinson’s W-2s for those tax years
from Mid-States reflect the exact numbers; all the reported income was earned from his employment
at Mid-States.

Debtors reported their total income from employment or operation of any business was
$72,585 in 2007 and $78,071 in 2008.4 The W-2s for those tax years attributable to Mrs.
Wilkinson’s employment exactly make up the difference between the total reported wages and Mr.
Wilkinson’s wages from Mid-States. In other words, Debtors reported no income from the stone-
crushing, or any other, side business, to the IRS when they filed their 2007 and 2008 returns.
Similarly, they claimed no self-employment income on their SOFA.

In section 18 of their SOFA, Debtors did indicate that they previously operated a business
known as 4-J Construction. But they indicated, again, under penalty of perjury, that this business
ceased operation in October 2004. Debtors also filed Schedule I, and that schedule also fails to show
any income from the operation of any side business. Finally, in completing Form 22A, the “means

4Mr. Wilkinson also reported $772.00 in unemployment compensation in 2007.
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test” form, Debtors affirmatively disclosed in Section 4 that they had $0.00 in “gross receipts” from
the operation of a business, profession or farm. The only income included in Form 22A for Mr.
Wilkinson, which requires debtors to reflect the average income from the six months preceding the
date of filing, is the $3,272.58 Debtors indicate he earned from Mid-States. The six month period
prior to the filing date would include at least the period December 29-February 28, which this Court
believes constitute a majority of the “winter months” typical in Kansas.

Finally, Debtors were able to produce three receipts to show Mr. Wilkinson used the skid
loader in a side business once in 2005, once in 2006, and once in 2007 (in February). Debtors
produced no other receipts to show that they similarly used it any time after Mr. Wilkinson became
employed at Mid-States, which was three years prior to the filing of the petition.

Additional facts will be discussed below, when necessary.

II. ANALYSIS
Section 522(b) of the Bankruptcy Code5 specifies that a debtor can take the exemptions
enumerated in § 522(d) unless applicable state law specifically provides otherwise. Kansas has
opted out of the federal exemptions, and has enacted its own set of exemptions.6 “When determining
the validity of a claimed state law exemption, bankruptcy courts look to the applicable state law.”7

Under Kansas exemptions laws, Debtors can exempt
The books, documents, furniture, instruments, tools, implements and equipment, the
breeding stock, seed grain or growing plants stock, or the other tangible means of

5This bankruptcy was filed after October 17, 2005, when most provisions of the Bankruptcy Abuse Prevention
and ConsumerProtectionActof2005 becameeffective. All future statutory referencesarethusto the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, 11 U.S.C. §§ 101-1532 (2005), unless otherwise specifically noted.

6 See In re Lampe, 331 F.3d 750, 754 (10th Cir. 2003) (citing K.S.A. 60-2312).

7In re Urban, 262 B.R. 865, 866 (Bankr. D. Kan. 2001).

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production regularly and reasonably necessary in carrying on the person’s profession,
trade, business or occupation in an aggregate value not to exceed $7,500.8
Numerous Kansas appellate decisions have addressed the requirements of the Kansas tools of the
trade exemption as it relates to primary and secondary occupations.
The seminal case on this issue is Jenkins v. McNall. 9 In Jenkins, the Kansas Supreme Court
set forth the following interpretation of the Kansas tools of the trade exemption: “If [a debtor] has
two separate pursuits, the exempted articles must belong to his main or principal business. In other
words, to the business in which he is primarily engaged.”10 The holding of Jenkins has been
recognized by the Tenth Circuit Bankruptcy Appellate Panel in In re Lampe,11 where it held “[i]n
Kansas, the tools of the trade exemption applies only to the business or profession in which the
debtor is ‘principally engaged.’”12
A debtor's right to an exemption is determined as of the date the bankruptcy petition is filed.13
“In determining whether a debtor is entitled to claim an exemption, ‘the exemption laws are to be

8K.S.A. § 60-2304(e).
927 Kan. 532 (1882).
10Id. at 534.
11278 B.R. 205 (10th Cir. B.A.P. 2002).
12Id. at 210 (citing Seel v. Wittman, 173 B.R. 734, 736 (D. Kan. 1994), In re Zink, 177 B.R. 713, 715 (Bankr.


D. Kan. 1995), and In re Massoni, 67 B.R. 195, 196-97 (Bankr. D. Kan. 1986)).
13 In re Ginther, 282 B.R. 16, 19 (Bankr. D. Kan. 2002) (citing In re Currie, 34 B.R. 745, 748 (D. Kan. 1983)).
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construed liberally in favor of exemption.’”14 “Once a debtor claims an exemption, the objecting
party bears the burden of proving the exemption is not properly claimed.”15

The Trustee raises two objections to Debtors’ claimed exemptions. First, the Trustee claims
that the skid loader with trailer or the red iron were not “regularly and reasonably” necessary for
Debtor’s business or profession. Second, the Trustee claims that because Mr. Wilkinson’s primary
job is with Mid-States, he cannot claim the tools of the trade exemption for property used in his side
job.

A.
The Court finds the skid loader with trailer and red iron do not qualify as tools
of the trade under the facts of this case.
The Court finds the Trustee has shown that the Debtors’ use of the skid loader with trailer
and the red iron were not “regularly and reasonably” necessary for their business or profession on
the date they filed their bankruptcy petition.16 At issue here is the conflict between Debtors’ position
in this contested matter, where they claim that the skid loader with trailer and red iron are regularly
used by Mr. Wilkinson in the winter months to operate a side business to support their family, and
the statements made under penalty of perjury both to the Internal Revenue Service and to this Court
on their tax returns and bankruptcy schedules, respectively. In both filings, they claim that 100%
of Mr. Wilkinson’s income since at least 2007 was derived from wages from Mid-States and a small
amount of unemployment compensation.

14
th

In re Lampe, 331 F.3d 750, 754 (10 Cir. 2003) (quoting In re Ginther, 282 B.R. 16, 19 (Bankr. D. Kan.
2002)).

15Id. See also Fed. R. Bankr. Proc. 4003; In re Robinson, 295 B.R. 147, 152 (10th Cir. BAP 2003).

16The Trustee originally objected to Debtors’ attempt to exempt Mr. Wilkinson’s personal tools. However,
because Debtors’ have stated that those tools are used by Mr. Wilkinson at his job with Mid-States, the Trustee has
agreed to withdraw her objection as to those personal tools.

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The Debtors attempt to explain this discrepancy by indicating that they used their 2007 and
2008 tax returns to prepare the SOFA and bankruptcy schedules, and that those returns contained
no income from the side business because an accountant advised them that they did not make enough
money from that business to report it on their tax returns.17 Debtors admit that they may need to file
amended tax returns to correct the income they reported to the IRS, but that this Court need not
concern itself with that issue—that it is an issue solely between them and the Internal Revenue
Service. The Court disagrees.

The Court finds that Debtors’ prior sworn statements, both in connection with the filing of
their tax returns and their bankruptcy statements, operate to effectively bar Debtors from claiming
that they regularly operate a side business at the relevant time. According to the Internal Revenue
Code,18 all persons who have net income in excess of $400 from self-employment are required to file
tax returns reporting that income to the IRS. Therefore, even if the Court could consider the
argument that a third party told them not to declare the income, Debtors’ failure to report any self-
employment income in 2007 and 2008 can only mean that they either earned less than $400 annually
from that business or that they failed to report all of their income to the IRS.

In addition, Debtors clearly and consistently stated on their bankruptcy schedules, including
their SOFA, Schedule I and Form 22A, that they received zero income from this side business.
Schedule J further indicates no business expenses for the side business, either. Debtors’ explanation
that the income was not reported on Schedule I because they were not engaged in the side business

17As a preliminary matter, there is nothing in the stipulations to support this argument, and without a stipulation,
the Court must disregard this “fact.” It is inadmissible hearsay to which the parties did not stipulate, and Debtors
expressly waived the opportunity to present evidence outside the stipulations.

1826 U.S.C. § 6017.

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at the actual time of filing (due to the fact that Mr. Wilkinson was working for Mid-States on the
date of filing) is certainly plausible, and in the absence of other inconsistent statements, acceptable.
However, that does not explain Debtors’ failure to disclose the additional income on their SOFA,
which requires the disclosure of the gross amount of all income from employment or operation of
a business during the two years prior to filing.

In addition, if this side business is used regularly through the winter months, as Debtors
claim, it seems likely Debtors would have realized at least some income during the six-month look
back period required under the means test. Because this bankruptcy was filed at the end of June,
2009, the look back period would have included all of January and February, which are the months
that most fit the description of “winter months” in Kansas.

Although Debtors now claim, when it is financially beneficial to do so, that the skid loader
and steel are regularly used in a side business that generates income for them during the winter
months, they have consistently stated, under oath, when it was financially beneficial to them to not
disclose the business income, that they the received no money from any side business from at least
February 2007 forward. Debtors cannot have it both ways.

They cannot claim that they rely on this property to generate income for their family that is
needed in the winter months, while previously stating under oath that no such income existed. The
Debtors have clearly taken inconsistent positions regarding this side business based upon what is
most beneficial to them at the moment. By doing so, the Court finds they are now judicially
estopped from advancing their current argument that the property is regularly used to generate

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income the family relies upon during the winter.19 Based upon the prior statements made under
penalty of perjury by these Debtors on their tax returns and bankruptcy schedules, the Court finds
they are barred from claiming that the skid loader with trailer and red iron were regularly used in Mr.
Wilkinson’s profession or occupation at the time they filed their bankruptcy petition.20

B.
The Court does not need to decide whether the property, if regularly used in a
side business, would have qualified as exempt under K.S.A. 60-2304(e).
The second issue raised by the Trustee deals with the issue of whether the skid loader and
red steel qualify as exempt under the Kansas tools of the trad exemption because it was used in a side
business rather than Debtors’ primary employment. The Court addressed this issue, underpotentially
distinguishing facts, in In re Cooper.21 In Cooper, the debtor was primarily employed as a car
salesman and was seeking to exempt a fishing boat and motor that he intended to use as a fishing
guide in the future. Among other holdings, the Court held:

The Kansas Supreme Court’s interpretation of the tools of the trade exemption, as
discussed in Jenkins, requires property to be used in debtor’s primary job or
occupation before it qualifies under K.S.A. § 60-2304(e). The Supreme Court of
Kansas has held that tools of the trade used in a secondary occupation are not exempt
under Kansas law, and this Court therefore defers to that interpretation.22

Because the debtor’s primary occupation was that of a car salesman, the property used (or to be used)
in his job as a fishing guide were not exempt.

19See Eastman v. Union Pacfic R. Co., 493 F.3d 1151 (10th Cir. 2007) (applying the principle of judicial
estoppel to debtors who had taken inconsistent positions in legal proceedings to bar them from advancing a claim). And
Debtors’ failure to provide any more recent receipts showing the use of the property after February 2007, when they were
able to produce older receipts for the time prior to Mr. Wilkinson’s full-time employment with Mid_States, further
corroborates this point.

20The Court also notes that the inconsistent position taken by Debtors could lead to a plethora of other issues
for Debtors, most of which would come with much more severe consequences than simply losing an exemption.

21324 B.R. 133 (Bankr. D. Kan. 2004).

22Id at 137.

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Debtors contend that the facts of this case differ from those in Cooper on one critical point.
Debtor’s primary occupation is that of a stone-crusher, and both his primary job and side job fall
under that same occupation, which was not the case in Cooper. According to Debtors, the property
clearly falls within the language of K.S.A. 60-2304(e). The Trustee responds by claiming that
because the skid loader and red iron are used as a part of Mr. Wilkinson’s primary employment at
Mid-States, he should not be allowed to exempt the property that is used in his side job.

The Court finds that the facts of this case do distinguish it from Cooper. In this case, had Mr.
Wilkinson’s side business been anything other than the same type of work that he performs at his
primary employment, then the Court’s holding in Cooper would clearly have applied. In other
words, if Mr. Wilkinson worked as a stone-crusher at Mid-States as his primary occupation, and then
worked as an automobile mechanic on the side, the tools used in that side job would not be exempt
under Jenkins. Although it seems fundamentally unfair to hold that a person whose side job is the
same as their primary job can exempt the tools used in that side job, while also holding that a person
whose side job differs from their primary job cannot exempt his or her tools used in the side job, that
may be what is required by the Kansas tools of the trade exemption.

The parties have not cited any case by the Kansas appellate courts, or other courts interpreting
Kansas law, that have taken the position articulated by Debtors in this case. Because the Court has
already found that the propertyin question does not qualify for the tools of the trade exemption based
upon the fact that it is not regularly used by Mr. Wilkinson (as shown on his tax returns and
bankruptcy schedules), the Court does not need to decide this issue at this time. The Court declines
to issue what would constitute an advisory opinion on this important area of Kansas law.

III. CONCLUSION
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For the reasons set forth above, the Court finds that the Trustee’s objection to Debtors’
claimed exemption under K.S.A. 60-2304(e) should be sustained as it relates to the skid loader with
trailer and the red iron. Debtors consistently reported on their tax returns and their bankruptcy
schedules (under penaltyof perjury) that Mr. Wilkinson does not earn any extra money from this side
business, and they are estopped from taking a different position now when the contrary position
would benefit them. Because the property is not regularly used in Mr. Wilkinson’s occupation, it
does not qualify under K.S.A. 60-2304(e) and cannot be claimed as exempt. The Trustee has elected
to not contest Mr. Wilkinson’s exemption of the personal tools, and her objection will be overruled
as to those tools.

IT IS, THEREFORE, BY THE COURT ORDERED that the Trustee’s Objection to
Debtor’s Exemptions23 is sustained as it relates to the skid loader with trailer and red iron identified
in Debtors’ schedules. The objection is overruled as it relates to Mr. Wilkinson’s personal tools, and
those are found to be exempt pursuant to K.S.A. 60-2304(e).

###

23Doc. 9.

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