Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

In re Bird

United States Bankruptcy Appellate Panel of the Tenth Circuit

November 30, 2017

JOHN THOMAS BIRD, Appellee. GARY E. JUBBER, former Chapter 7 Trustee and FABIAN VANCOTT, Counsel to the former Chapter 7 Trustee, Appellants, IN RE BRENT DAVID CHRISTENSEN and JO-ANN HALL CHRISTENSEN, Debtors. GARY E. JUBBER, former Chapter 7 Trustee and FABIAN VANCOTT, Counsel to the former Chapter 7 Trustee, Appellants,
BRENT DAVID CHRISTENSEN and JO-ANN HALL CHRISTENSEN, Appellees. National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys, Amici Curiae.

         Appeal from the United States Bankruptcy Court for the District of Utah

          Douglas J. Payne of Fabian VanCott (David P. Billings with him on the briefs), Salt Lake City, Utah for Appellants Gary E. Jubber and Fabian VanCott.

          Paul J. Toscano of Salt Lake City, Utah for Appellees John Thomas Bird, Brent David Christensen and Jo-Ann Hall Christensen.

          Before MICHAEL, ROMERO, and HALL, Bankruptcy Judges.


          HALL, Bankruptcy Judge.

         The former Chapter 7 trustee and his counsel appeal the bankruptcy court's Memorandum Decision[1] and related orders[2] (together, the "Order") entered in two separate cases on the same legal issue with respect to analogous facts. The cases were consolidated on appeal for purposes of briefing and oral argument.[3] The Order denies fee applications ("Fee Applications") submitted by the trustee and his counsel for fees and expenses incurred in connection with litigation of claimed homestead exemptions prior to conversion of the cases to Chapter 13.[4] Although the ultimate issue in these cases relates to professional compensation, the underlying facts give rise to more difficult fundamental concerns such as the tension between the bankruptcy system's fresh start policy and payment of unsecured creditors. Moreover, these cases concern the role of a Chapter 7 trustee in finding the balance between those competing interests through objective performance of the duties and responsibilities assigned to him under the Bankruptcy Code. Finding no error in the bankruptcy court's analysis or ruling, we AFFIRM.


         John Bird ("Bird") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code[6] on October 19, 2015. On the same day, Brent and Jo-Ann Christensen (the "Christensens") filed their voluntary petition for Chapter 7 relief (Bird and the Christensens collectively, "Debtors"). Debtors are represented by the same bankruptcy counsel, and Gary E. Jubber, an attorney and shareholder in the firm of Fabian VanCott, was appointed Chapter 7 trustee ("Trustee") in both cases. Trustee filed applications to employ attorney Douglas J. Payne and the firm of Fabian VanCott as counsel ("Counsel") in both cases, which were approved by the bankruptcy court.

         On Schedule A, Bird listed his residence located at 122 Manilla Drive, Draper, Utah (the "Bird Homestead"), and the Christensens listed their residence located at 6358 Jamestown Ct., Murray, Utah (the "Christensen Homestead") (collectively, the "Homesteads"). Both Homesteads were subject to mortgages and liens well in excess of their scheduled value. The Bird Homestead was scheduled with a value of $240, 400, but was encumbered by the following liens: (i) a first mortgage of $133, 275.17; (ii) a second mortgage of $20, 550.05; (iii) a tax lien in favor of the Internal Revenue Service (the "IRS") of $147, 661.33; and (iv) judgment liens totaling $5, 383.93. The Christensen Homestead was scheduled with a value of $351, 000, but was encumbered by the following liens: (i) a mortgage of $300, 000; (ii) a tax lien in favor of the IRS of $115, 531.85; (iii) and a tax lien in favor of the Utah State Tax Commission of $1, 962.99. On Schedule C, Bird claimed a homestead exemption of $30, 000; similarly, the Christensens claimed a homestead exemption of $51, 000.

         In December 2015, Trustee objected to Debtors' homestead exemptions, arguing there was no equity in the Homesteads to which the claimed exemptions could attach (the "Homestead Objections"). Trustee did not, however, set the matters for hearing. Notwithstanding that the Homestead Objections were based on lack of equity, after Debtors received their Chapter 7 discharges on January 20, 2016, Trustee filed applications to employ a real estate agent to sell the Homesteads. Debtors filed objections thereto, as well as responses to the Homestead Objections. Additionally, Debtors filed motions seeking an order forcing abandonment of the Homesteads by Trustee (the "Motions to Abandon"), arguing that (i) they were of inconsequential value and burdensome to the estates, and (ii) a sale would not be in the interest of creditors or Debtors. All of these matters were then set for a hearing before the bankruptcy court on February 24, 2016.

         Just days before the scheduled hearing, Trustee filed stipulations pursuant to § 506(c) that he had entered into with the IRS (the "Stipulations")[7] and motions to approve the Stipulations (the "Motions to Approve Stipulation").[8] The Stipulations indicated the IRS' consent to sale of the Homesteads pursuant to § 363(f), and further provided the IRS would, pursuant to § 506(c), "carve-out" $10, 000 of the proceeds from sale of each of the Homesteads subject to the IRS' liens "for the benefit of the bankruptcy estate to be distributed in accordance with the priorities of the Bankruptcy Code" (the "Carve-Outs").[9] Additionally, each Stipulation provided that:

The IRS hereby subordinates any lien or claim it may have to the [Homestead] and the proceeds from the sale of the [Homestead] to the extent of the Carve-Out and hereby waives and releases any and all claims it may have to the Carve-Out other than those claims it may have as a general unsecured creditor of the estate.[10]

         At the February 24, 2016 hearing, the bankruptcy court overruled the Homestead Objections, allowing Debtors' claimed exemptions. After written orders were subsequently entered on March 1, 2016, Trustee then appealed the orders to the United States District Court for the District of Utah (the "District Court"). In the meantime, the bankruptcy court set the Motions to Abandon for evidentiary hearing on March 23, 2016.

         On the same day he appealed the bankruptcy court's orders overruling his Homestead Objections to the District Court, Trustee filed motions to sell the Homesteads (the "Motions to Sell"), soon followed by notices to take Debtors' depositions and applications to employ an appraiser. The Motions to Approve Stipulation and Motions to Sell were scheduled for hearing about a month after the hearing on the Motions to Abandon. The Motions to Sell were premised on sales contracts with a $322, 000 purchase price for the Bird Homestead, and a $425, 000 purchase price for the Christensen Homestead. Although the sales contract prices for the Homesteads were quite a bit higher than Debtors' scheduled values, they still only exceeded the total encumbrances by a minimum amount - $4, 129.52 in Bird's case and $7, 505.16 in the Christensens' case.[11]Moreover, the proceeds from sale of the Homesteads would be subject to payment of Trustee's and Counsel's fees and expenses, and additional administrative expenses for the six percent realtor commission and one percent closing costs provided for in the sales contract.[12]

         Immediately prior to the bankruptcy court's scheduled March 23, 2016 evidentiary hearing on the Motions to Abandon, Debtors filed objections to the Motions to Sell on basically the same grounds as they did with respect to the Motions to Approve Stipulations.[13] Debtors contended any sale of the Homesteads would leave nothing for their homestead exemptions. At the same time, Debtors filed motions to vacate their Chapter 7 discharges and convert their cases to Chapter 13 (the "Motions to Convert"). Essentially, Debtors were seeking to avoid both Trustee's liquidation of their Homesteads without any payment of their homestead exemptions, and growing legal fees that continued to be incurred in connection with Trustee's appeal of the bankruptcy court's orders overruling the Homestead Objections. The Motions to Convert were set for hearing with the Motions to Approve Stipulations and Motions to Sell on April 20, 2016, and the other matters were continued to that date. Debtors also amended their respective Schedules C to remove the claimed homestead exemptions.[14]

         At the April 20, 2016 hearing, the bankruptcy court granted the Motions to Convert, and subsequently entered written orders (the "Conversion"). The bankruptcy court's orders granting the Conversion mooted the numerous other pending motions filed by Trustee and Debtors. Trustee's appeals to the District Court of the bankruptcy court's orders overruling his Homestead Objections were also rendered moot when the Motions to Convert were granted and Debtors amended their Schedules C.[15]

         About two months following the Conversion, Trustee and Counsel filed their Fee Applications, requesting that such professional compensation be allowed as administrative expenses claims under § 503(c) entitled to priority under § 507, meaning they would be required to be paid in full under Debtors' Chapter 13 plans pursuant to § 1322(a)(2).[16] In Bird's case, Trustee sought fees of $3, 634, and Counsel sought fees and costs of $31, 110.97, for total compensation of $34, 744.97. In the Christensens' case, Trustee sought fees of $2, 765, and Counsel sought fees and costs of $28, 998.63, for total compensation of $31, 763.63. The exhibits attached to the Fee Applications readily indicate that Trustee performed about seventy percent of Counsel's work in both cases.[17]

         Debtors objected to the Fee Applications, and on August 16, 2016, the bankruptcy court conducted a hearing. The bankruptcy court denied the Fee Applications in their entirety on the basis that, under § 330(a)(4)(A)(ii), the fees and costs sought were for services neither necessary to administration of the cases nor reasonably likely to benefit Debtors' estates. In determining Trustee and Counsel's services were unnecessary, the bankruptcy court found that, here where the Homesteads had no equity value in excess of liens but were subject to valid homestead exemptions, Trustee had "no obligation to seek carve-outs from secured creditors or sell encumbered property subject to such agreements."[18]

         For several reasons, the bankruptcy court also concluded the services provided were not reasonably likely to benefit Debtors' estates, i.e., result in a meaningful distribution to unsecured creditors. First, the bankruptcy court determined the proposed sales of the Homesteads were not authorized by any subsection of § 363(f). Specifically, the homestead exemptions were not subject to a bona fide dispute under § 363(f)(4), and Debtors could not be compelled to accept a money satisfaction under § 363(f)(5). Second, the bankruptcy court reasoned that even if the sales were permitted, Debtors-and not unsecured creditors-would be entitled to the proceeds of the Carve-Outs as payment of their homestead exemptions.

         In reaching this result, the bankruptcy court disagreed with Trustee's interpretation of §§ 724 and 522(c)(2)(B), that would permit him, pursuant to a carve-out agreement with a tax lien claimant, to "liquidate the [Homesteads] in order to satisfy the tax liens to the detriment of the Debtors' homestead exemptions, "[19] and that the Carve-Outs constituted a valid § 506(c) surcharge. Finally, the bankruptcy court explained that the Bankruptcy Code's fresh start policy objectives did not support approval of the proposed sale of the Homesteads. In other words, Trustee's proposal would impermissibly subordinate the homestead exemptions because the sale proceeds would go to pay large, unnecessary bankruptcy administrative fees, leaving Debtors with nondischargeable tax claims, no home, and no homestead exemption.

         Trustee and Counsel (collectively, "Appellants") now appeal the bankruptcy court's Order.


         Appellants contend the bankruptcy court erred as a matter of law in denying the Fee Applications under § 330, based on its incorrect interpretations of §§ 522(c)(2)(B), 724(b), 363(f) and the Utah homestead exemption statute. A bankruptcy court's decision to disallow compensation under § 330 is reviewed for abuse of discretion.[20] We apply a clearly erroneous standard to its factual findings regarding whether services rendered were necessary to administration of the estate or reasonably likely to benefit the estate.[21]However, we review "any statutory interpretation or other legal analysis underlying the [bankruptcy court's] decision concerning attorney fees de novo."[22] Additionally, a bankruptcy court's interpretation of a state statute is reviewed de novo.[23]


         The professional compensation at issue in these cases arises in a somewhat unusual posture. Although the fees and expenses stem from fairly typical bankruptcy litigation matters, i.e., the Homestead Objections, the Motions to Sell, and the Motions to Abandon, the typicalness is complicated by the following. First, there are questions regarding whether it was appropriate, on the facts presented, for Trustee to attempt to administer the Homesteads as property of the estate, and for whose benefit such efforts were being made. Second, Debtors have now converted their Chapter 7 cases to Chapter 13 and withdrawn their homestead exemptions. Therefore, if the Fee Applications were approved, Debtors would be required to pay one hundred percent of Trustee's and Counsel's fees and expenses ($34, 744.97 total in Bird's case, and $31, 762.98 total in the Christensens' case) through their Chapter 13 plans.

         These complicating factors necessarily give rise to the competing interests of bankruptcy's fresh start policy for honest but unfortunate debtors and payment of a dividend to unsecured creditors. But more importantly, these cases draw attention to Trustee's critical role in performing the bankruptcy system's required balancing act. We begin with a brief general discussion of compensation for bankruptcy professionals before evaluating the bankruptcy court's determination that the services provided by Trustee and Counsel were neither necessary to administration of the estate nor likely to provide a benefit.

         Trustees and other bankruptcy professionals are entitled to compensation for services rendered to the estate, subject to the limitations of §§ 326, 327, and 328. When a professional submits an application for compensation, § 330 requires a bankruptcy court to independently review the requested fees and expenses, regardless of whether any objection has been made to the application. The purpose of the independent review is to ensure that the services provided were necessary, reasonable, and justified. In other words, a bankruptcy court has an obligation to see that bankruptcy estates are administered efficiently and economically for the benefit of creditors.[24]

         The bankruptcy court's scrutiny of professional fee applications is particularly important when, as is the case here, a trustee and/or his firm has been authorized to serve as an attorney or accountant for the estate.[25] Section 327(d) permits this "dual capacity" status. But in light of the fact this recognized conflict of interest provides an opportunity for self-dealing, [26] a trustee may be authorized to serve as counsel only if it "is in the best interests of the estate."[27] Further, because various trustee duties should be performed without the assistance of an attorney or accountant, [28] a bankruptcy court's careful review of applications for fees and expenses is critical in a dual capacity situation.

         A bankruptcy court's award of professional compensation is governed by § 330. In general, that section provides:

(a)(1) After notice to the parties in interest and the United States Trustee and a hearing, and subject to section 326, 328, and 329, the court may award to a trustee . . . or a professional person employed under section 327 or 1103-
(A) reasonable compensation for actual, necessary services rendered by the trustee . . .; and
(B) reimbursement for actual, necessary expenses.[29]

         However, § 330(a)(4) provides that bankruptcy courts shall not allow compensation for services that were not "reasonably likely to benefit the debtor's estate"[30] nor "necessary to the administration of the case."[31] After reviewing the Fee Applications, the bankruptcy court concluded § 330(a)(4) prevented approval of Trustee's and Counsel's fees and expenses.

         On appeal, Appellants contend their services were, in fact, necessary and beneficial to administration of Debtors' estates. The Court would note that the distinction between the statutory requirements that the services be "necessary to administration of the estate"[32]versus "reasonably likely to benefit the estate"[33] is not always clear. For example, according to the United States Court of Appeals for the Tenth Circuit ("Tenth Circuit"), "[a]n element of whether the services were 'necessary' is whether they benefitted the bankruptcy estate."[34] Nevertheless, we address them separately and in the same order as discussed by the bankruptcy court, and agree with its conclusions.

         Additionally, Appellants argue the bankruptcy court's conclusions regarding the necessity and benefit of their services were premised on erroneous interpretation of certain statutory provisions, and therefore its rulings cannot stand. We ultimately conclude, however, that the bankruptcy court's determinations regarding necessity and benefit to the estate of the services are well supported and that, even if its statutory interpretations were incorrect, denial of the Fee Applications is not reversible error. Further, Appellants complain that the bankruptcy court's denial of the Fee Applications in their entirety is error and they are entitled to some compensation. We disagree.

         A. The Bankruptcy Court Did Not Err in Concluding the Services Were Not Necessary to the Administration of Debtors' Estates.

         Underscoring the bankruptcy court's conclusion that the services provided by Trustee and Counsel were not necessary to the administration of the Debtors' estates is a recognition that, on the facts of these cases, abandonment of the Homesteads would have better comported with a Chapter 7 trustee's ultimate duties and responsibilities. The Bankruptcy Code, an abundance of case law, and express language in the Handbook for Chapter 7 Trustees prepared by the Office of the United States Trustee ("Trustee Handbook")[35] all emphatically support the bankruptcy court's decision.

         "A chapter 7 trustee is a fiduciary of the estate whose principal duty is to administer estate property so as to maximize distribution to unsecured creditors, whether priority or general unsecured."[36] Section 704, which prescribes the duties of a Chapter 7 trustee, directs a trustee to "collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest."[37] To make this possible, § 363 authorizes a trustee, after notice and a hearing, to sell property of the estate "other than in the ordinary course of business."[38] The purpose of liquidating the estate's assets is so that the proceeds may be distributed to the debtor's creditors.[39] But a trustee's duty to liquidate property of the estate is not without its limits. In certain situations, such as when liquidation will result in little to no payment to the unsecured creditors, the proper course of action is for a trustee to abandon the property pursuant to § 554.[40]

         Although the concept of abandonment was not expressly provided for in the early Bankruptcy Acts, it has been long recognized that bankruptcy courts should not administer encumbered property and authorize its sale "unless it is made to appear that there is a fair prospect of the property being sold for substantially more than enough to discharge the lien or liens upon it."[41] Instead, the possession and control of fully or over-encumbered property should be released and surrendered.[42]

         As the bankruptcy court explained, even in the face of court rulings condemning such practices, Congress noticed that "some trustees took burdensome or valueless property into the estate and sold it in order to increase their commissions."[43] Congress responded by adding abandonment provisions to the Bankruptcy Act of 1978, which are now codified in § 554.[44] Section 554 provides in pertinent part:

(a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
(b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.[45]

         Thus, if property is burdensome or of no benefit to the estate, a trustee has the discretion to abandon such property; and if a trustee does not abandon valueless property, a party in interest may ask the bankruptcy court to order a trustee to abandon such property.

         The Trustee Handbook amplifies the directions from Congress to trustees that are embodied in §§ 704 and 554. It is a valuable source of guidance because it is prepared by the Executive Office of the U.S. Trustee Program, which was created "to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders - debtors, creditors, and the public."[46] In its introduction to a Chapter 7 trustee's duties, the Trustee Handbook admonishes:

A chapter 7 case must be administered to maximize and expedite dividends to creditors. A trustee shall not administer an estate or an asset in an estate where the proceeds of liquidation will primarily benefit the trustee or the professionals, or unduly delay the resolution of the case. The trustee must be guided by this fundamental principle when acting as trustee. Accordingly, the trustee must consider whether sufficient funds will be generated to make a meaningful distribution to unsecured creditors, including unsecured priority creditors, before administering a case as an asset case. 28 U.S.C. § 586.[47]

         The Trustee Handbook further provides that "a trustee should not sell property subject to a security interest unless the sale generates funds for the benefit of unsecured creditors. A secured creditor can protect its own interests in the collateral subject to the security interest."[48] That guidance is underscored by another of the Trustee Handbook's directives:

In asset cases, when the property is fully encumbered and of nominal value to the estate, the trustee must immediately abandon the asset and contact the secured creditor immediately so that the secured creditor can obtain insurance or otherwise protect its own interest in the property. 11 U.S.C. §§ 554, 704.[49]

         A multitude of reported cases reinforces these principles. In fact, as one bankruptcy appellate panel put it, "[i]t is universally recognized, [ ] that the sale of a fully encumbered asset is generally prohibited."[50]

         Nevertheless, Appellants contend the Homesteads could have, and should have, been sold because the Carve-Outs negotiated with IRS would result in a benefit to the unsecured creditors.[51] As support for their argument, Appellants cite several cases, [52] as well as certain language in the Trustee Handbook.[53] While, the Court does not deny Appellants' cited authorities stand for the proposition that the sale of fully encumbered properties may be warranted in some circumstances, it strongly disagrees that those type of circumstances are presented here.[54]

         As Appellants point out, the Trustee Handbook acknowledges exceptions to the general rule preventing the sale of fully encumbered assets. Specifically, it states:

In certain limited circumstances, however, a trustee may properly sell encumbered property that would generate no proceeds for the benefit of unsecured creditors ("fully encumbered property"). For example, a trustee may be able to satisfy in full a blanket security interest on multiple units of property by selling only one unit. Similarly, a trustee may be able to obtain a higher price from an aggregate sale of assets than from selling the assets individually. In a case with other funds available for unsecured creditors, a trustee also may sell fully encumbered property to eliminate a deficiency, if the secured creditor agrees to waive any unsecured claim for a deficiency in the event the sale does not fully satisfy the security interest.[55]

         Clearly, however, while secured creditor carve-outs may be appropriate in certain circumstances, [56] such circumstances are not present in these cases.

         Again, we agree with Appellants that the Trustee Handbook does not prohibit carve out agreements with a secured creditor as per se improper, and directs that when administering fully encumbered property, a trustee should obtain an agreement from a secured creditor to recover costs of sale from the collateral pursuant to § 506(c).[57] However, it does make it clear that a carve out negotiation should be undertaken only in appropriate circumstances:

A trustee may sell assets only if the sale will result in a meaningful distribution to creditors. In evaluating whether an asset has equity, the trustee must determine whether there are valid liens against the asset and whether the value of the asset exceeds the liens. The trustee may seek a "carve-out" from a secured creditor and sell the property at issue if the "carve-out" will result in a meaningful distribution to creditors. The trustee must also consider whether the cost of administration or tax consequences of any sale would significantly erode or exhaust the estate's equity interest in the asset. If the sale will not result in a meaningful distribution to creditors, the trustee must abandon the asset.[58]

         Thus, carve out agreements are only permitted if they result in meaningful distributions to creditors. And the definition of meaningful depends on the totality of circumstances.

         As explained by the First Circuit, "bankruptcy courts have defined the equity that justifies a sale of property, consistently and explicitly, in one way: the value remaining for unsecured creditors above any secured claims and the debtor's exemption."[59] This "equity for unsecured creditors"[60] is what authorizes a trustee to exercise his powers of sale under § 363 in the first place, because liquidation should not be for the benefit of the estate's secured creditors. Therefore, a trustee's negotiation of a carve out with a secured creditor as a means of creating the equity necessary to justify the sale of fully encumbered estate property is suspect and presents opportunities for collusion.[61] Here, Trustee and Counsel fees, together with realtor commissions and closing costs, would have totaled at least $57, 284.97 in the Bird case ($34, 744.97 $22, 540), and $61, 513.63 in the Christensens' case ($31, 763.63 $29, 750).[62] Unsecured creditors, on the other hand, would have received only $10, 000 in each case.[63] Trustee's steps in obtaining the Carve- Outs here in order to sell the Homesteads would shift estate assets away from the IRS to professionals, harming Debtors in the process.[64]

         On these facts, sale of the Homesteads undoubtedly violates the Trustee Handbook's directive that estate property should not be sold "where the proceeds of liquidation will primarily benefit the trustee or the professionals, or unduly delay the resolution of the case."[64] Further, Trustee's attempted sale is in derogation of courts' universal recognition that "the sale of a fully encumbered asset is generally prohibited."[65] We see no need to deviate from these firmly entrenched rules here. The numbers in these cases more than adequately support the bankruptcy court's belief that

the sale of fully-encumbered property typically benefits two parties: the trustee, who can administer the property and receive a commission on the disbursed proceeds, and the secured party, which has its collateral liquidated without having to undertake the toil and labor of foreclosure proceedings.[66]

         As a result, we conclude the bankruptcy court did not err in determining Trustee's and Counsel's services, for which the Fee Applications sought compensation, were not necessary to the administration of Debtors' estates.

         B. The Bankruptcy Court Did Not Err in Concluding the Services Were Not Reasonably Likely to Benefit the Estates.

         Appellants also contend the bankruptcy court erred in determining the proposed sales of the Homesteads were not reasonably likely to benefit the estates. On appeal, Appellants primarily argue the bankruptcy court's conclusion as to the non-beneficial nature of their services was founded on several erroneous legal determinations: (1) Debtors were entitled to homestead exemptions even though there was no equity in the Homesteads; (2) sale of the Homesteads was not authorized by § 363(f); and (3) §§ 724(b) and 522 do not create exceptions to the homestead exemption. We address these assertions briefly, but ultimately conclude the bankruptcy court's determination that Appellants' services were not likely to benefit the estates was not reversible error, regardless of whether its legal determinations were correct or incorrect.

         Our conclusion is based on the totality of applicable statutes and case law and the way in which they relate to one another. Looking at these authorities in combination, three principles stand out. First, exemptions are extremely important to the Bankruptcy Code's fresh start policy, and of these exemptions, the homestead exemption is paramount. Second, a Chapter 7 trustee is duty bound to administer the estate solely for the benefit of creditors. And third, the Bankruptcy Code's objective and priorities control and are not subject to being rearranged by the actions of a Chapter 7 trustee.

         The bottom line is that, in light of these principles, we take no issue with the bankruptcy court's conclusion that these Homesteads should have been abandoned by the Trustee, and therefore, find no error in its ruling that Appellants' services were not beneficial to the estate. While sale of the Homesteads might admittedly have benefitted the estates' unsecured creditors to a minimum extent, the proceeds would primarily benefit Appellants and other bankruptcy professionals, to the considerable detriment of Debtors and the exemptions to which they are entitled. As a result, Appellants' services do not meet the compensation criteria of § 330(a)(4)(ii).

         1. Debtors Were Entitled to Claim Homestead Exemptions under Utah Law

         Appellants contend the bankruptcy court's decision denying the Fee Applications is reversible because it erroneously interpreted the Utah exemption statute. Instead, they argue that Utah homestead exemptions, which are denominated as specific amounts, are based on value in the property and not the property itself, and therefore not available to Debtors absent equity in the Homesteads.[67] We disagree.

         The Utah Constitution commands that the legislature shall provide for a homestead exemption consisting of "lands, together with the appurtenances and improvements thereon."[68] As a result, the Utah Exemption Act[69] provides in relevant part:

(2) (a) An individual is entitled to a homestead exemption consisting of property in this state in an amount not exceeding: . . .
(ii) $30, 000 in value if the property claimed is the primary personal residence of the individual.
(b) If the property claimed as exempt is jointly owned, each joint owner is entitled to a homestead exemption; however
. . .
(ii) for property exempt under Subsection (2)(a)(ii), the maximum exemption may not exceed ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.