Trustee Objection to Exemptions

[BobMango]

My folks filed CH 7 pro se and had their 341 today. They filed in NM using Federal exemptions and unfortunately had about $7K in an account with Wells Fargo. This was a joint account with her sister (not filing) and she claimed the account as exempt.

When they filed WF froze the account. At the 341 today the trustee said he may not return those funds. They claimed an exemption (unused homestead wildcard) of about $6,500 but I think there was over $7K in the account.

The trustee initially filed a Report of No Distribution but then Pacer shows that about 10 minutes later that report was withdrawn and a recommendation to retain his firm (the trustee's) to investigate potential assets was filed. The specific language in the filing is:

The Trustee believes that the estate has potential assets that will require time and legal expertise to dispose of in the manner that maximizes value to the estate. Allowing the Trustee to employ A&M will reduce the total amount expended by the estate on these costs, due to A&M’s familiarity with the case.

So the question is, could the trustee just be after the amount above the claimed exemption, or the entire account? Not the end of the world if they lose it, but it definitely would hurt. When should they know exactly what the trustee is after?

And ideas as to what happens next and how they should prepare?

Thanks in advance.

[justbroke]

Well, the Trustee should also be filing a Objection to Claim of Exemption if the Trustee is specifically going after the entire amount. Without knowing "exactly" what property they claimed (Form A and B) and just what exemptions they claimed on them (Form C), then there is no telling what the Trustee is thinking.

As for the exemption amount ($7K in liquid cash assets and $5K claimed), I do not know where they came up with that number, since the unused homestead exemption, under the Federal Scheme, is some $13,275 and doubled when filing jointly. (That is if the homestead exemption is not used, then a married couple filing jointly would be $26,550.)

They should prepare by reviewing ALL of the claimed exemptions against the federal exemption scheme. I would do this in a spreadsheet. They should be prepared for an Objection to Claim of Exemptions by the Trustee. They could seek an order of the court to force Wells Fargo (WF) to turnover the funds (Motion to Compel Turnover of Property) as a side tactic which could force the "exemption" objection.

Unless and until the Trustee files the reason to object to the use of exemption, there's no telling how to proceed further.

[BobMango]

The trustee has filed a Notice of Potential Dividend and the Order appointing his firm has been signed by the judge. There is also the Trustees Statement of Assets listed as filed but no actual document. Also, no objection to exemptions yet.

I did check their petition and it appears that they had an incorrect amount balance listed on the bank account, leaving about $1,000 exposed. Also appears they incorrectly cited the exemption for a small 401k. Would filing ammended schedules help or hurt at this point? I know the court does not necessarily have to accept the ammended schedules.

Thanks again.

[BobMango]

Oh, and apparently the trustee ordered WF to send him the funds in that account. Don't know if he intends to object and claim the entire account or just take his cut and return the rest.

[justbroke]

The trustee has filed a Notice of Potential Dividend and the Order appointing his firm has been signed by the judge. There is also the Trustees Statement of Assets listed as filed but no actual document. Also, no objection to exemptions yet.

It may be in the Notes for the actual docket entry (not an actual document, just notes).

I don't know what to say. Of course if it comes down to a claim of exemption, the schedules can be amended. At this point, you would need to see what the Trustee's basis is for going after the money. If this were an attorney, the attorney would probably call the Trustee.

[BobMango]

Thanks JB. At this point I'm guessing it's just best to wait and see what the trustee is thinking. He apparently did not want to discuss the matter with my folks so I assume he's waiting to see what he can dig up before he commits.

[despritfreya]

If they claimed the wrong exemption on Schedule C the Schedule should be properly amended. This could be done now or in response to the Objection the Trustee will most likely file before December 22nd. But, before they do anything, they really need to consult with an attny. What has apparently happened here is not uncommon with pro se filings.

Now that the Trustee has hired an attny (who apparently will be someone in his firm), the Trustee is not going to communicate directly with your folks. All communication will go through his attny, as he is probably turning the matter over to someone else in his firm. Now, if he is wearing both hats (trustee and attny for trustee) there should be no problem discussing the matter with him.

As to WF, the freezing of the account is exactly why I tell all of my clients to get any and all $$ held in a WF account out before filing, even if the $$ is not theirs but their name is on the account.

Des.

[justbroke]

Des, I forgot that Wells Fargo is one of the only banks to freeze accounts on the filing of a bankruptcy petition. Good advice to remind people to move funds in WF accounts before filing. (To tell you the truth, I thought WF got in trouble over freezing accounts in the past and had stopped the practice. Not so nice to read that they are back up to their old tactics.)

This is also a good reminder that potential pro se filers that have real assets, need to really reconsider filing pro se. The pitfalls in dealing with property (which includes cash, stocks, bonds, and other non-liquid assets) can be very devastating.

I hope that this works out for your parents.

[BobMango]

Thanks Des. I'll make sure they consult with an attorney before they do anything else.

Looking at the language the trustee put in the request for appointment, "the estate has potential assets that will require time and legal expertise to dispose of" makes me think he's looking at more than just a bank account. I did check Pacer and the only entry for the Trustees Statement of Assets is the entry notes which just says -- Trustees Statement of Assets. I'm guessing the statement will actually be filed after his law firm takes a look.

[LadyInTheRed]

If the joint account has a 7,000 balance, then shouldn't only 3,500 be listed as an asset? Something to consider when filing an amendment. The trustee may want to know who actually contributed funds to the account. If all deposits were made by your parents, the trustee may argue that it's all theirs anyway.

[BobMango]

Hi LITR, that was the question, to be safe she included what she thought the entire balance was since she has room in her exemptions.

She did contact an attorney and he's looked at the paperwork, other than the discrepancy in the account balance and a typo on her 401K exemption, he didn't see anything of concern.

He has been trying to speak with the trustee since Monday, but the trustee is not returning his calls. Once he knows what the trustee is actually looking at he will advise as to how she should proceed.

[justbroke]

Hopefully, the amendments to the petition schedules will be enough! If the trustee has still not filed an Objection to the exemptions, they are probably just being picky about having the property being correctly exempted on the schedules.

[BobMango]

The attorney my mother has been speaking with finally heard back from the trustee. Seems he's going after the WF account that had $1000 more than the claimed exemption. Since she used the federal wildcard I'm assuming the trustee will need to file an objection if he wants more of that account than the exempted $1000. I don't see how the trustee has any means to take the entire account otherwise.

[justbroke]

If the asset is not exempted, the Trustee can take the entire account. With joint accounts, each joint owner does own the entire account individually. In other words, if you and I had a joint account and I put $6K in it and you put $0 in it, you could still take the $6K and there is nothing that I could do. (Downfall of joint accounts.)

Your mother's attorney would need to amend the schedules and file an opposition to the Trustee's objection to claim of exemption. If there is more wildcard left over, then the amended schedules (Schedule C in particular) should exempt more of that account. If there are no exemptions left to cover all of the balance in that WF account, then it is exposed and that portion is non-exempt.

Right now, based on the Schedules, the Trustee would be entitled to anything not exempted at this point. So the Trustee could take the $1,000 without filing any objection to exemptions, because the Trustee is not objecting to an exemption. The Trustee would be taking it as "non-exempt" because it was not explicitly exempted. Now, if you amended the schedules and claimed the entire amount as exempt (because you have enough unused federal wildcard exemption), then you could exempt the entire amount.

Hopefully, any amendments to the schedule(s) has already been done and served on the Trustee. Then it will come down to any particular "fight" over the exemption claimed.

Let me add that I don't see why a Trustee would get overly excited about $1K. I wonder if there is more to the exemption than appears by the Trustee's superficial "notice" that s/he expects a dividend.

[BobMango]

So this just keeps getting better. This morning the attorney says it looks like the trustee is actually going to try and strip the lien on the property that my mother jointly owns with her sister. The property is in California and in both of their names but the mortgage is held by her sister only and the mortgage exceeds the property value. My parents relocated to New Mexico about 3 years ago. The attorney seems to think that the trustee is working to strip the lein and sell the property. The end result is that since my Mom's sister did not file she would lose the property and still be on the hook for the loan. My understanding was that this kind of thing can not take place if substantial harm would accrue to the other party and this seems to be fitting the bill, but...

We'll have to see what the attorney says...