Elaina Marie Moses

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 08-40042 TM
Chapter 7
ELAINA MARIE MOSES,
Debtor.
____________________________/
MEMORANDUM OF DECISION
The 	chapter 	7 	trustee 	in 	the 	above-captioned 	case 	(the
“Trustee”) 	objects 	to 	the 	amended 	claim 	of 	exemption 	of 	the 	above-
captioned debtor (the “Debtor”) for a 2007 income tax refund in the
amount of $10,346 (“Tax Refund”). 	The Trustee seeks disallowance of
the exemption. 	Alternatively, he seeks to surcharge the exemption to
reimburse the estate for its costs seeking turnover of the Tax Refund
prior to the Debtor’s claiming it as exempt. 	The Debtor opposes both
requests for relief. 	For the reasons stated below, the amended claim
of 	exemption 	for 	the 	Tax 	Refund 	will 	be 	disallowed 	and 	the 	Trustee
will be awarded an order for the monetary amount of the Tax Refund.
Signed: August 19, 2008
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
August 20, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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1California law provides two schedules of potential
exemptions, one available to all judgment debtors and another
available only to judgment debtors who have filed bankruptcy
petitions. 	Compare Cal. Civ. Proc. Code § 703.140 with § 704.010
et seq.
2For some reason, no copy of the Turnover Order appears to
have been served on the Debtor’s counsel.
2
DISCUSSION
A. 	SUMMARY OF EVIDENCE AND ARGUMENTS
On 	January 	4, 	2008, 	the 	Debtor 	filed 	a 	voluntary 	petition
seeking 	relief 	under 	chapter 	7 	of 	the 	Bankruptcy 	Code. 	The 	Debtor
filed 	her 	schedules 	of 	assets 	and 	liabilities 	on 	or 	before 	January
30, 2008. 	She listed the Tax Refund as an asset on Schedule B, her
schedule 	of 	personal 	property 	assets, 	in 	the 	estimated 	amount 	of
$2,500. 	She 	did 	not 	claim 	the 	Tax 	Refund 	as 	exempt 	on 	Schedule 	C,
her 	schedule 	of 	claimed 	exemptions. 	The 	exemptions 	she 	did 	claim
were those available to all judgment debtors, not only those who have
filed for bankruptcy. 	See Cal. Civ. Proc. Code § 704.010 et seq. 1
On February 11, 2008, the Trustee filed an ex parte motion and
obtained 	an 	ex 	parte 	order 	directing 	the 	Debtor 	to 	provide 	the
Trustee 	with 	a 	copy 	of 	her 	tax 	return 	when 	it 	was 	completed 	and 	to
turn over the Tax Refund when it was received (the “Turnover Order”).
A copy of the Turnover Order was mailed to the Debtor. 2 	On February
20, 	2008, 	the 	Debtor 	filed 	an 	amended 	Schedule 	C, 	substituting 	a
schedule 	of 	exemptions 	based 	on 	Cal. 	Civ. 	Proc. 	Code 	§ 	703.140 	for
those 	based 	on 	§ 	704.010 	et 	seq. 	On 	the 	amended 	Schedule 	C, 	the
Debtor 	did 	claim 	the 	Tax 	Refund 	as 	exempt, 	albeit 	still 	in 	the
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3California law requires a married debtor filing alone to file
a waiver, signed by both spouses, of the right to claim exemptions
under the alternate set of exemptions in a subsequent bankruptcy
filing while the current case is still pending. 	See Cal. Civ.
Proc. Code § 703.140(a)(2).
3
estimated 	amount 	of 	$2,500. 	On 	the 	same 	day, 	she 	filed 	a 	spousal
waiver as required by § 703.140(a)(2). 3
On 	February 	21, 	2008, 	the 	Trustee 	filed 	an 	objection 	to 	the
amended 	claim 	of 	exemption 	for 	the 	Tax 	Refund. 	The 	Trustee 	sought
disallowance of the amended claim of exemption on the ground that it
was filed only after the Trustee sought turnover of the Tax Refund.
Alternatively, 	the 	Trustee 	sought 	to 	surcharge 	the 	Tax 	Refund 	to
reimburse the estate of its expense in seeking turnover prior to the
Debtor’s 	filing 	her 	amended 	claim 	of 	exemption. 	No 	hearing 	on 	the
objection and/or request for surcharge was requested at that time.
The Debtor signed her tax return on April 14, 2008. 	The returns
indicated 	that 	the 	Debtor 	was 	entitled 	to 	receive 	a 	tax 	refund 	of
$10,346. 	The 	Debtor 	did 	not 	file 	an 	amended 	Schedule 	B 	or 	C,
reflecting the increased value of the Tax Refund and did not provide
her 	tax 	returns 	to 	the 	Trustee 	when 	they 	were 	completed. 	As 	a
result, the Trustee set the objection for hearing on July 17, 2008.
Two 	days 	before 	the 	hearing, 	on 	July 	15, 	2008, 	the 	Debtor 	provided
the Trustee with a copy of her tax returns.
At the hearing, the Trustee argued that the Debtor should not be
allowed to exempt the Tax Refund. 	He gave an oral recitation of the
facts supporting his request. 	The Court directed the Trustee to put
these 	grounds 	in 	writing, 	with 	supporting 	evidence 	to 	the 	extent
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necessary, 	and 	gave 	the 	Debtor 	a 	deadline 	for 	responding 	to 	his
filing. 	The 	Trustee 	filed 	a 	declaration 	setting 	forth 	the 	grounds
for 	his 	objection 	(the 	“Trustee’s 	Declaration”), 	and 	the 	Debtor’s
counsel 	filed 	a 	timely 	declaration 	in 	response 	(the 	“Debtor’s
Counsel’s Declaration”).
1. 	Trustee’s Declaration
In the Trustee’s Declaration, the Trustee noted that he obtained
the 	Turnover 	Order 	on 	February 	11, 	2008 	and 	that 	the 	Debtor’s 	only
response was to file the amended claim of exemption. 	He noted that
the Debtor continued to ignore the requirement of the Turnover Order
to turn over the Debtor’s tax returns when they were completed. 	The
tax returns were not turned over until July 15, 2008, two days before
the 	hearing 	on 	the 	Trustee’s 	objection 	to 	the 	Debtor’s 	exemption
claim. 	The Trustee stated that he had made repeated written demands
for 	turnover 	in 	the 	meantime: 	i.e., 	on 	April 	13, 	2008, 	April 	29,
2008, and June 12, 2008. 	The Trustee also stated that, between
June 18 and 20, 2008, he received three telephone messages from the
Debtor 	stating 	that 	the 	Tax 	Refund 	had 	been 	seized 	by 	creditors 	so
that he was purportedly wasting his time prosecuting the objection.
The 	Trustee 	stated 	that 	he 	responded 	in 	writing 	to 	the 	Debtor,
advising 	her 	that, 	because 	she 	was 	represented 	by 	counsel, 	it 	was
inappropriate for her to communicate directly with him. 	On July 15,
2008, 	the 	Debtor’s 	counsel 	finally 	provided 	him 	with 	a 	copy 	of 	the
tax 	returns. 	On 	July 	16, 	2008, 	the 	Trustee 	was 	given 	documents 	to
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4The Trustee noted that at least some of the claims of the
creditors that seized the Tax Refund appear to be nondischargeable.
Thus, the Debtor has been personally benefited at the expense of
the estate as a result of the seizure.
5
support 	the 	Debtor’s 	claim 	that 	the 	Tax 	Refund 	had 	been 	seized 	by
creditors. 4
Finally, the Trustee noted that Local Bankruptcy Rule 4003-1(b)
requires 	a 	spousal 	waiver 	to 	be 	filed 	by 	the 	deadline 	for 	filing 	a
debtor’s 	Schedules 	of 	Assets 	and 	Liabilities. 	The 	deadline 	for
filing 	these 	schedules 	in 	the 	instant 	case 	was 	February 	19, 	2008.
The spousal waiver was not filed until February 20, 2008.
2. 	Debtor’s Counsel’s Declaration
The 	Debtor’s 	Counsel’s 	Declaration 	did 	not 	dispute 	any 	of 	the
facts 	set 	forth 	in 	the 	Trustee’s 	Declaration. 	With 	respect 	to 	the
untimeliness of the spousal waiver, the Debtor’s counsel noted only
that no spousal waiver was necessary until the amended Schedule C was
filed. 	He 	argued 	that, 	since 	amended 	claims 	of 	exemptions 	are
liberally 	allowed, 	this 	rule 	should 	be 	liberally 	applied 	to 	permit
spousal waivers to be filed after the deadline for filing schedules
when filed with an amended claim of exemptions.
The 	Debtor’s 	counsel 	also 	contended 	that 	the 	facts 	recited 	by
the 	Trustee 	did 	not 	support 	a 	finding 	of 	bad 	faith. 	He 	noted 	that
the Tax Refund was disclosed in the Debtor’s Schedule B and at the
§ 	341 	meeting 	of 	creditors. 	Mere 	delay, 	he 	argued, 	does 	not
establish bad faith. 	He noted that the Debtor had never received the
Tax 	Refund 	in 	that 	the 	Internal 	Revenue 	Service 	and 	Franchise 	Tax
Board applied an offset to repay debts owed by the Debtor’s husband:
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i.e., for student loans and Department of Motor Vehicle charges. 	He
noted that these debts were owed only by the Debtor’s husband who was
not 	a 	debtor. 	Thus, 	the 	Debtor 	was 	not 	required 	to 	schedule 	these
creditors. 	He 	admitted 	that 	the 	Debtor 	did 	forget 	to 	schedule 	a
small 	debt 	owed 	by 	the 	Debtor 	to 	the 	City 	of 	Inglewood, 	which 	he
contended that the Debtor had forgotten about.
The 	Debtor’s 	counsel 	asserted 	that 	the 	Trustee 	had 	failed 	to
establish any prejudice. 	He declared that, after receiving a copy of
the 	Turnover 	Order, 	he 	was 	unable 	to 	get 	in 	touch 	with 	the 	Debtor
until 	July 	10, 	2008. 	Once 	he 	did, 	the 	Debtor 	supplied 	him 	with 	a
copy of her 2007 tax returns which he then sent to the Trustee. 	The
Tax 	Refund 	had 	already 	been 	seized 	by 	that 	time. 	He 	declared 	that
the 	reason 	she 	had 	failed 	to 	comply 	with 	the 	Turnover 	Order 	sooner
was 	that 	she 	believed 	that, 	since 	the 	Tax 	Refund 	had 	already 	been
seized, there was no longer any need to do so.
Finally, 	the 	Debtor’s 	counsel 	contended 	that 	the 	Trustee’s
request 	for 	reimbursement 	of 	the 	full 	amount 	of 	the 	Tax 	Refund 	was
without merit. 	He noted that the Trustee had supplied no authority
for 	requesting 	reimbursement 	of 	a 	tax 	refund 	that 	the 	Debtor 	never
received and contended that no such authority exists. 	He also took
issue with the Trustee’s contention that his office has a policy of
having 	debtors 	claim 	exemption 	under 	Cal. 	Civ. 	Proc. 	Code 	§ 	704
unless 	the 	trustee 	discovers 	assets 	at 	the 	§ 	341 	meeting 	and 	then
amending 	to 	claim 	the 	§ 	703 	exemptions. 	He 	declared 	that 	no 	such
policy exists.
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B. 	DECISION
Based 	on 	the 	foregoing, 	the 	Court 	concludes 	that 	the 	Debtor’s
amended claim of exemption as to the Tax Refund should be disallowed.
The untimely filing of the spousal waiver is sufficient grounds for
its disallowance. 	The Debtor’s counsel is correct that amendments to
claims 	of 	exemption 	are 	liberally 	allowed. 	See 	In 	re 	Michael, 	163
F.3d 526, 529 (9 th Cir. 1998); In re Arnold, 252 B.R. 778, 784 (Bankr.
9 th Cir. 2000).
However, a distinction should be made between an amended claim
of exemption as to a specific asset and a change in the election of
the California statutory scheme under which the Debtor is claiming a
right to exemptions. 	The latter effects a much broader alteration to
the rights of the bankruptcy estate and its creditors. 	The drafters
of the Local Rule, Local Bankruptcy Rule 4003-1(b), were presumably
aware 	of 	the 	liberal 	policy 	for 	permitting 	amended 	claims 	of
exemption and chose to impose a more rigid deadline for making such
an election. 	It was reasonable of them to conclude that the chapter
7 	trustee 	is 	entitled 	to 	a 	prompt 	notification 	of 	the 	statutory
exemption scheme under which the debtor intends to proceed.
The 	Court 	disagrees 	with 	Debtor’s 	counsel 	that 	the 	facts 	recited
above are insufficient to establish the Debtor’s bad faith. 	There is
no 	evidence 	that 	the 	Debtor 	acted 	in 	bad 	faith 	in 	her 	initial
estimate that the Tax Refund would only be in the amount of $2,500.
However, 	clearly 	on 	April 	14, 	2008, 	when 	she 	completed 	her 	tax
returns, 	she 	knew 	that 	it 	would 	be 	much 	more. 	Yet, 	she 	failed 	to
amend her schedules or to inform the Trustee of the increased amount.
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5According to the Debtor’s Counsel’s Declaration, counsel was
unable to reach the Debtor until just before the hearing. 	He does
not say what efforts were made prior to that time to contact the
Debtor. 	Given this omission, the Court will assume that the
Debtor’s counsel made some attempts at communication. 	Again,
failing to do so would have been malpractice. 	However, the
Debtor’s failure to respond to the attempts does not excuse the
Debtor’s counsel. 	He could have informed the Trustee of the
problem rather than simply ignoring the communications.
8
Had she done so, it is possible that the Trustee might have been able
to prevent the Internal Revenue Service and Franchise Tax Board from
seizing 	the 	Tax 	Refund. 	Moreover, 	as 	the 	Trustee 	pointed 	out, 	she
clearly 	benefitted 	from 	the 	nondisclosure 	in 	the 	that 	seizure
resulted in the satisfaction of debts owed by her husband.
The 	Debtor 	also 	failed 	to 	turn 	over 	a 	copy 	of 	her 	tax 	return
when 	it 	was 	completed 	despite 	being 	under 	court 	order 	to 	do 	so.
Although the Debtor’s counsel was apparently not served with a copy
of 	the 	Turnover 	Order, 	a 	copy 	was 	served 	on 	the 	Debtor 	herself.
Thus, 	she 	knew 	she 	had 	an 	obligation 	to 	provide 	a 	copy 	of 	her 	tax
returns to the Trustee in April 2008 when she submitted them to the
taxing authorities.
The 	Debtor 	also 	acted 	improperly 	in 	failing 	to 	respond 	to 	the
Trustee’s repeated demands for turnover of the Tax Refund until the
Trustee 	was 	required 	to 	set 	the 	matter 	for 	hearing 	and 	then 	by
responding only a day or two before. 5 	There is no evidence that the
Debtor 	was 	not 	aware 	of 	the 	attempts 	of 	her 	counsel 	to 	contact 	her
between 	late 	April 	and 	early 	June 	2008. 	The 	Debtor’s 	improper
communications 	to 	the 	Trustee, 	rather 	than 	going 	through 	counsel,
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indicate 	that 	she 	had 	received 	notice 	of 	the 	Trustee’s 	demands 	by
then.
The 	Debtor 	has 	submitted 	no 	evidence 	in 	support 	of 	the
contention 	of 	her 	counsel 	that 	the 	Debtor 	acted 	in 	good 	faith. 	No
declaration 	of 	the 	Debtor 	has 	been 	filed. 	The 	Debtor’s 	counsel
cannot speak to the Debtor’s subjective state of mind.
The 	final 	question 	is 	the 	appropriate 	remedy. 	The 	Trustee’s
original 	request 	was 	for 	turnover 	of 	the 	Tax 	Refund. 	Clearly, 	the
Debtor 	cannot 	turn 	over 	an 	asset 	that 	she 	does 	not 	have. 	However,
money 	is 	fungible. 	Even 	if 	the 	Debtor 	had 	received 	the 	Tax 	Refund
and 	had 	written 	the 	Trustee 	a 	check 	in 	the 	amount 	received, 	it 	is
unlikely 	that 	the 	amount 	paid 	would 	represent 	the 	same 	dollars
received from the taxing authorities. 	Thus, what the Trustee was and
is seeking is a monetary award. 	The Trustee is entitled to such an
order, whether as substitution for the Tax Refund or as a surcharge
on 	her 	other 	exempt 	assets 	to 	protect 	the 	integrity 	of 	the 	court
processes. 	See In re Latman, 366 F.3d 774, 786 (9 th Cir. 2004). 	The
order should provide that it is enforceable as a money judgment.
CONCLUSION
In sum, the Trustee’s objection to the Debtor’s amended claim of
exemption for the Tax Refund is sustained. 	The Trustee is allowed an
order 	directing 	the 	Debtor 	to 	pay 	the 	estate 	the 	sum 	of 	$10,346
which 	will 	be 	enforceable 	as 	a 	money 	judgment. 	The 	Trustee 	is
directed to submit a proposed form of order in accordance with this
decision.
END OF DOCUMENT
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COURT SERVICE LIST
Steven L. Jacobs
Law Offices of Steven L. Jacobs
14895 E. 14 th St., #390
San Leandro, CA 94578
Paul Mansdorf
1563 Solano Ave., #703
Berkeley, CA 94707
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