W.D.N.C.: Cooper v. Crow- Procedures for Amendment to Exemptions Governed by State Law

Summary: Ms. Crow filed a Chapter 13 bankruptcy, but after a creditor raised issue with her exceeding the §109(g) debt limits, converted to Chapter 7. Eight months after the initial filing of her voluntary bankruptcy petition, Ms. Crow sought to amend her schedules to claim an exemption in an individual retirement account (IRA) that had been omitted from her original petition, but would otherwise indisputably have been exempt. The Trustee opposed this amendment, arguing that Ms. Crow failed to show the change in circumstances required for modifications of exemptions by N.C.G.S. § 1C-1603(g). The bankruptcy court found that the omission was inadvertent due to the complexity of the case (which involved Ms. Crow’s ownership interests in several companies) allowed the amendment, but required Ms. Crow to pay the Trustee’s costs associated with discovery of the IRA. On appeal, the district court first explained that in North Carolina, exemptions are governed by state law rather than the exemption scheme of § 522(d) of the Bankruptcy Code. As such, state law applies as to substance and for procedure. The district court further noted that other bankruptcy court had “overlooked North Carolina’s procedural requirements for amending exemptions and have instead relied on the general and liberal right to amend under Bankruptcy Rule 1009(a)” but did not need to address whether Rule 1009(a) applies in addition to the state law requirements. The Trustee argued that under N.C.G.S. § 1603(g) Ms Crow’s “exemption may be modified upon a change of circumstances....” The district court, however, held that exemptions can be modified due to either a “change in circumstances” under § 1603(g) or on showing of mistake, surprise, or excusable neglect under § 1601(c)(3), which Ms.  Crow had adequately shown. Commentary: While the district court did not address whether the Rule 1009(a) requirements were in addition to the N.C.G.S. § 1-C-1603(g) requirements, it also did not analyze whether § 522(b)(2) and Rule 1009 incorporated or preempted the North Carolina procedural requirements regarding exemptions. 11 U.S.C. § 522(b)(3) exempts “any property that is exempt under ... State or local law...” This does, so clearly the substantive North Carolina exemptions are to be used. It does not explicitly incorporate the State law procedures for exemptions. If that were the case, then all of the provisions of N.C.G.S. § 1C-1603 for claiming exemptions would also apply in bankruptcy court, including, for example, using the exemption form mandated by the North Carolina Administrative Office of the Courts by N.C.G.S. § 1C-1603(c1). For a copy of the opinion, please see: Cooper v. Crow- Procedures for Amendment to Exemptions Governed by State Law