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In re Crabtree

United States Bankruptcy Appellate Panel of the Eighth Circuit

January 24, 2017

In re: Todd Allen Crabtree; Terryl Lynn Crab tree DebtorsDaniel McDermott, United States Trustee Plaintiff- Appellee
v.
Todd Allen Crabtree; Terryl Lynn Crabtree Defendants-AppellantsTodd Allen Crabtree; Terryl Lynn Crabtree Debtors - Appellants
v.
Gene W. Doeling Chapter 7 Trustee - Appellee

          Submitted: December 8, 2016

         Appeal from United States Bankruptcy Court for the District of Minnesota - Fergus Falls

          Before FEDERMAN, Chief Judge, SALADINO and NAIL, Bankruptcy Judges.

          NAIL, Bankruptcy Judge

         Debtors Todd Allen Crabtree and Terryl Lynn Crabtree ("Debtors") appeal the August 8, 2016 memorandum decision and order of the bankruptcy court sustaining Trustee Gene W. Doeling's ("Trustee") objection to Debtors' claimed homestead exemption. We reverse and remand for further proceedings consistent with this opinion.

         BACKGROUND

         In March 2012, Debtors began making improvements to the real property they claim as their homestead. Around the same time, Debtors' daughter Bethany Harris opened a checking account at Wells Fargo Bank. She and Debtors' son Bror Crabtree were signatories on the account and made some deposits into it. Debtors were not signatories on the account but made the "large bulk" of the deposits into it.

         Debtors used the checking account, which they refer to as "the farm account, " to pay for some of the improvements to their homestead. Between August 21, 2012 and December 3, 2012, Debtors' daughter issued eight checks totaling $45, 951.21 to various contractors for that purpose.

         The farm account was not the only source of payments for the improvements to Debtors' homestead. In January 2013, Debtor Todd Crabtree's sister Dianne Merrifield wired $19, 990.00 to Pierce Log Homes. In July 2013, Debtor Todd Crabtree issued a check for $6, 000.00, drawn on his personal checking account, to Ugstad Plumbing. And in August 2013, Debtor Todd Crabtree transferred 250 silver coins to his son-in-law Mike Harris, who sold the coins for $6, 375.00, deposited $4, 021.53 in his personal checking account, and used the remaining $2, 353.47 to pay other contractors.

         For reasons unrelated to the construction of their home, Debtors filed a petition for relief under chapter 7 of the bankruptcy code on December 16, 2013. On their schedule of real property, Debtors valued their home at $200, 000.00. On their schedule of creditors holding secured claims, Debtors listed a mortgage against their home, with a balance owing of $133, 725.00. On their schedule of property claimed exempt, Debtors claimed the equity of $66, 275.00 exempt under Minnesota's homestead exemption.

         Trustee filed an objection to Debtors' claimed exemptions. In his objection, Trustee alleged, inter alia, Debtors' claimed homestead exemption should be reduced under 11 U.S.C. § 522(o) by the $70, 000.00 to $90, 000.00 of otherwise nonexempt property that Trustee believed Debtors had transferred into their homestead within the past ten years with the intent to hinder, delay, or defraud their creditors.

         The United States Trustee filed a complaint objecting to Debtors' discharge. In his complaint, the United States Trustee alleged Debtors should be denied a discharge under 11 U.S.C. § 727(a)(2)(A) for transferring property with the intent to hinder, delay, or defraud their creditors, under 11 U.S.C. § 727(a)(3) for failing to keep or preserve recorded information from which their financial condition and business transactions might be ascertained, and under 11 U.S.C. § 727(a)(4)(A) for making false oaths in or in connection with their bankruptcy case.

         The two matters were tried separately, but because of their interconnectedness, the bankruptcy court issued a single memorandum decision and order addressing both. Therein, the bankruptcy court, inter alia, sustained Trustee's objection to Debtors' claimed homestead exemption and reduced Debtors' homestead exemption by $74, 249.68, comprising the costs of the improvements identified above, denied Debtors' discharge, and directed the entry of judgment in the adversary proceeding.

         Debtors timely appealed. Debtors' notice of appeal references both the bankruptcy court's memorandum decision and order and the resulting judgment in the adversary proceeding. However, Debtors do not challenge the bankruptcy court's decision to deny their discharge. They challenge only the ...


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