Michael Christopher Foley and Marguerite Anntionette Foley

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
MICHAEL CHRISTOPHER FOLEY
MARGUERITE ANNTIONETTE FOLEY
DEBTORS
CASE NO.
06-01024-5-ATS
ORDER ALLOWING OBJECTION TO EXEMPTIONS
The matter before the court is the chapter 7 trustee's objection
to the debtors' exemptions. A hearing took place in Raleigh, North
Carolina on October 25, 2006.
Michael Christopher Foley and Marguerite Anntionette Foley filed
a petition for relief under chapter 7 of the Bankruptcy Code on July
11, 2006, and Joseph N. Callaway was appointed trustee. At the time of
filing, the Foleys through their corporation operated an hourly drop-
off daycare center that also provided for evening childcare services
and hosting of birthday parties. In their Schedule C filed with the
petition, the Foleys claimed a wildcard exemption in the amount of
$10,000 pursuant to North Carolina General Statute § 1C-1601(a)(2) in
SO ORDERED.
SIGNED this 30 day of October, 2006.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
Case 06-01024-5-ATS Doc 47 Filed 10/30/06 Entered 10/30/06 16:38:00 Page 1 of 6

2
"Stock and interest in M5 Ventures, Inc." The debtors indicated that
the market value of the asset was unknown.
When the Foleys appeared for their § 341 meeting of creditors on
August 17, 2006, the landlord for the daycare center had locked the
Foleys out and taken possession of the assets in the premises.
Thereafter, the landlord and counsel for the debtor contacted the
trustee to determine whether he intended to abandon the corporate
assets. Because the assets were not likely to bring more than the
amount of the claimed $10,000 exemption, the trustee indicated that he
was likely to abandon the assets.
On August 28, 2006, the Foleys filed an amended Schedule C to
reflect the cessation of operations of the business. The wildcard
exemption was amended to claim the funds in the business checking
account in the amount of $1,047, the stock of M5 Ventures in the amount
of $2,953, and a possible tax refund in the amount of $6,000 as exempt.
The market values of both the stock of M5 Ventures and the tax refund
were listed as unknown.
On September 19, 2006, the trustee filed an objection to the
debtors' exemptions, primarily related to some transfers of cash into
Individual Retirement Accounts prior to the bankruptcy filing. Prior
to the hearing, the trustee was satisfied that the transfers were
proper, and he is not pursuing that objection.
Case 06-01024-5-ATS Doc 47 Filed 10/30/06 Entered 10/30/06 16:38:00 Page 2 of 6

3
The debtors amended their exemptions again on September 29, 2006,
however, and the trustee filed an amended objection to the new
exemptions. The amendment was again to the wildcard exemption, this
time claiming a tax refund in the amount of $7,529 and the funds in the
business checking account in the amount of $2,471. The listed value of
the checking account was $2,614.
The trustee objects to the second amended exemptions on several
bases. First, he contends that the debtors misstated the balance
available in the business checking account on the petition date, and he
maintains that the debtors should not be allowed to exempt assets that
they did not fully disclose. Second, he contends that he was
prejudiced by the debtors' choice to initially exempt the full value of
the business until it appeared it had no value.
With respect to the balance in the business checking account on
the petition date, it is clear that the Foleys used the balance showing
in their checkbook, which would have included checks that had been
written but had not yet cleared the bank, in valuing the account. As
a result, the bank statements showed a higher balance due to
outstanding checks not yet cleared. This does not reflect an
intentional misstatement of the account balance, and the debtors will
be allowed to exempt the claimed value in the checking account.
The exemption of the business assets is a trickier question. When
the debtors initially filed their petition, they claimed an exemption
Case 06-01024-5-ATS Doc 47 Filed 10/30/06 Entered 10/30/06 16:38:00 Page 3 of 6

4
in the business in the amount of $10,000. They did not, however,
assign a value to the business. For the trustee's purposes, unless the
business had a value greater than $10,000, there was no reason to
attempt to value or pursue the assets of the business. It did not
appear to the trustee that the value exceeded $10,000, and he chose not
to take over the operations of the business or to try to close it down
and limit the postpetition expenses of the business including rent and
utilities.
When the debtors filed their amended exemptions, they reduced
their claimed exemption in the business to $2,953 in stock and $1,047
in the bank account, for a total exemption of $4,000 in business
assets. By that time, the landlord had taken over the business assets.
From the trustee's perspective, only if the business assets had a value
greater than the $4,000 exemption would pursuit of those assets have
been of benefit to the estate. While there were approximately $4,000
in accounts receivable, Ms. Foley used the incoming funds to pay some
of the business's bills including taxes and salaries and to refund
deposits for upcoming birthday parties. There remained approximately
$3,000 worth of equipment, but this fell within the debtors' claimed
exemption.
The debtors' amended exemptions claimed no exemption in the
business assets, save $2,471 in the business checking account (the
amount of the available wildcard after claiming the tax refund in the
Case 06-01024-5-ATS Doc 47 Filed 10/30/06 Entered 10/30/06 16:38:00 Page 4 of 6

5
amount of $7,529). Of course, also by this time, the remaining assets
were in the possession of the landlord, and the postpetition expenses
of the business, including rent, had continued to accrue. As a result,
no value remained in the business for the estate.
The trustee contends that this manipulation of the exemptions
prejudiced the estate because the trustee was unable to take over the
business assets while there was still value. Had the debtors not
claimed a $10,000 exemption in the business assets, the trustee could
have liquidated the business, reduced its expenses, and realized some
value for the benefit of the estate. Even by the time the debtors
filed their first amended exemptions, the trustee might have been able
to realize some value had he known the debtors were going to ultimately
claim no exemption in the business assets. As a result, the court
finds that the trustee was unduly prejudiced by the second amendment to
the exemptions, and it will not be allowed.
At the hearing, the trustee argued that the debtors should be held
to the exemptions they claimed on August 28, 2006, in their first
amendment. The court agrees. The debtors are entitled to exempt their
tax refund in the amount of $6,000, and they are entitled to an
exemption of $1,047 in the business checking account and $2,953 in
value of the assets of M5 Ventures, Inc. (excluding the checking
account).
Case 06-01024-5-ATS Doc 47 Filed 10/30/06 Entered 10/30/06 16:38:00 Page 5 of 6

6
Based on the foregoing, the objection to exemptions is ALLOWED,
and the debtors are entitled to the exemptions described above.
SO ORDERED.
END OF DOCUMENT
Case 06-01024-5-ATS Doc 47 Filed 10/30/06 Entered 10/30/06 16:38:00 Page 6 of 6