September In re Harchar, F.3d, Case Nos , , , 2012 WL (6th Cir. Sept. 12, 2012)

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1 September 2012 Sixth Circuit In re Harchar, F.3d, Case Nos , , , 2012 WL (6th Cir. Sept. 12, 2012) The Circuit Court of Appeals affirmed the Northern District of Ohio s decision affirming a dismissal of debtors assertions that the Internal Revenue Service violated a confirmed Chapter 13 plan under 1327 and the automatic stay. Holding that the debtors had not alleged a sufficient violation of 1327, the Circuit Court of Appeals nevertheless observed that 1327 does not provide an express right of action for damages if a confirmed Chapter 13 plan is violated. Although 105 may provide a remedy to enforce another provision of the Bankruptcy Code, the 6th Circuit reaffirmed prior holdings that 105 cannot serve as a basis for monetary damages. With respect to the automatic stay, the debtors had argued that the Internal Revenue Services practice of freezing computerautomated refunding of tax overpayments to Chapter 13 debtors was an act of setoff or exercise of control. The Circuit Court of Appeals characterized freezing as simply the manual processing of a debtor s refund claim to allow the IRS time to decide whether to file a motion to modify a plan, to see whether a debtor has defaulted, or determine if the refund should be sent to the Chapter 13 trustee as opposed to the debtor. The Circuit Court of Appeals held that freezing is not a setoff or an exercise of control; it is simply a slowdown in processing to determine the appropriate action with respect to a Chapter 13 debtor s refund. Finally, although the debtor had argued that freezing was a violation of procedural due process under the Fifth Amendment, the Circuit Court of Appeals held that the Internal Revenue Service was immune from suit notwithstanding having filed a proof of claim because the proof of claim and the act of freezing arose out of separate transactions or occurrences. The proof of claim concerned back taxes for several years prior to the freezing process of more recent years. In re Rice, B.R., Case No. 11 cv 14246, 2012 WL (E.D. Mich. Sept. 6, 2012) The District Court for the Eastern District of Michigan affirmed the Bankruptcy Court s decision sustaining a trustee s objection to a debtor s exemptions in former retirement funds. Following the filing of an amended Schedule C claiming exemptions in a cashier s check for retirement funds and garnished retirement funds, the debtor s Chapter 7 trustee objected. First, the Bankruptcy Court held that the debtor either intentionally or recklessly concealed the property at issue, notwithstanding his disclosure at the 341 meeting, and even if the debtor had not acted in bad faith in failing to disclose the property, it was at the least a reckless disregard for the truth. Although the debtor argued that there was no undue prejudice since the funds were exempt anyway, the District Court rejected the exemption analysis. Section 522(b)(4)(C) provides a continuing exemption for direct transfers from a qualified account to another, but the District Court held that it does not cover retirement funds converted to cash. Once out of the account, the funds lose protection. Although the debtor cited case law where tracing was allowed for proceeds following the disposition of what would have constituted exempt real estate, the District Court rejected its application to retirement funds, especially in light of 522(b)(4)(C) s codification as a protection device for inter account transfers, but not proceeds of a retirement account. (See Attachment 4)

2 In re Ahmed, Case No , 2012 WL (Bankr. E.D. Mich. Sept. 29, 2012) The Eastern District of Michigan affirmed the Bankruptcy Court s decision holding that money from a debtor s spouse s retirement account does not, by itself, constitute the debtor s own retirement funds. Prior to filing Chapter 7, the debtor and her husband divorced, pursuant to which, the divorce court ordered payment of a portion of the debtor s husband s retirement funds to the debtor. Following receipt, the debtor placed the funds in her newly opened 401k. Almost a month later, the debtor filed bankruptcy. Although the debtor argued that the funds equaled retirement funds under 522(d)(12) since they came from a 401k retirement account, the Bankruptcy Court and the District Court rejected the debtor s argument. The District Court characterized the debtor s argument as tempting, but could not agree since money set apart for retirement does not remain retirement forever. The District Court observed that should a retiree withdraw money he saved for retirement and use it to buy a car, it cannot be said that the dealer holds retirement funds. And although there is the further protection where someone inherits an IRA, the case here involved the divorce court s seizure of money which was then paid over to the wife. (See Attachment 5) Duncan v. Deutsche National Bank Trust Company, Case No. 1:11 cv 2006, 2012 WL (N.D. Ohio Sept. 20, 2012) The Northern District of Ohio affirmed the Bankruptcy Court s decision abstaining from hearing a debtor s adversary proceedings regarding claims arising out of pre petition foreclosure proceedings brought by Deutsche National Bank Trust Company and its loan servicer, IndyMac Mortgage Services. Following a debtor s bankruptcy filing, the debtor initiated adversary proceedings against the mortgage companies asserting they had violated state and federal law handling her mortgages. Specifically, the debtor asserted violations of the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act and the Ohio Consumer Protection Act. Faced with a motion to dismiss or abstain, the Bankruptcy Court abstained. Addressing one of the issues on appeal, the District Court articulated the standard for abstention, that being an abuse of discretion as provided under 1334(c)(1), under which, the District Court must be left with a definite and firm conviction that the bankruptcy court improperly applied the law, used an erroneous standard, or committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors. Although the debtor asserted that the Bankruptcy Court improperly classified certain claims as non core, the District Court rejected the debtor s argument because twenty one of the debtor s claims involved purely state law issues which existed prior to the petition filing, were independent of the provisions of title 11, and were unaffected by the debtor s bankruptcy status. As this was the only argument asserted against the Bankruptcy Court s decision to abstain, the District Court was left with no other evidence to consider in comparison with the thirteen factors typically analyzed under permissive abstention. In other words, while the District Court held that mechanical consideration of each factor is not nearly as important as the attention needed to be given the jurisdictional overlap between state and federal courts, addressing the elements of permissive abstention is still important. (See Attachment 6)

3 Submitted by: Jason Shorter, Esq. Bearfield & Associates Wesley Plaza, Suite Wesley Street P.O. Box 4210 Johnson City, Tennessee (423) (ph) (423) (fx) jbshorter@bearmc.com

4 Page B.R. ----, 2012 WL (E.D.Mich.), 110 A.F.T.R.2d (Cite as: 2012 WL (E.D.Mich.)) Bankruptcy United States District Court, E.D. Michigan, Southern Division. In re Cecil RICE, Debtor. Cecil Rice, Appellant, v. David W. Allard, Appellee. No. 11 cv Bankruptcy No Sept. 6, Background: Chapter 7 trustee objected to debtor's amended claim of exemption in cashier's check that he purchased using distribution of retirement benefits. The Bankruptcy Court, Steven Rhodes, J., 452 B.R. 623, entered order sustaining trustee's objection, and debtor appealed. Holdings: The District Court, George Caram Steeh, J., held that: (1) bankruptcy court did not clearly err in finding that Chapter 7 debtor had acted in bad faith, and with at least a reckless disregard for the truth, of kind that would preclude him from amending his exemption schedule, and (2) debtor was not entitled to exempt, as retirement funds held in tax exempt account, the cashier's check that he had purchased using prepetition distribution of funds from state as retroactive retirement benefits. Affirmed. West Headnotes [1] Bankruptcy XIX Review 51XIX(B) Review of Bankruptcy Court 51k3782 k. Conclusions of Law; De Novo Review. Most Cited Cases 51XIX Review 51XIX(B) Review of Bankruptcy Court 51k3785 Findings of Fact 51k3786 k. Clear Error. Most Cited Cases District court will not set aside bankruptcy court's findings of fact unless clearly erroneous, but reviews bankruptcy court's legal conclusions de novo. Fed.Rules Bankr.Proc.Rule 8013, 11 U.S.C.A. [2] Bankruptcy III The Case 51III(F) Schedules and Statement of Affairs 51k2325 k. Amendment. Most Cited Cases Bankruptcy k2794 Claim of Exemption or Lien Avoidance 51k2796 k. Amendment. Most Cited Cases Debtor is allowed to freely amend his schedules, including his schedule of exemptions, at any time before bankruptcy case is closed, provided that there is no bad faith or concealment of property. Fed.Rules Bankr.Proc.Rule 1009, 11 U.S.C.A. [3] Bankruptcy k2794 Claim of Exemption or Lien Avoidance 51k2796 k. Amendment. Most Cited Cases Whether there is any bad faith, such as will preclude debtor from amending his exemption schedule, is determined by examining totality of the circum-

5 Page B.R. ----, 2012 WL (E.D.Mich.), 110 A.F.T.R.2d (Cite as: 2012 WL (E.D.Mich.)) stances. Fed.Rules Bankr.Proc.Rule 1009, 11 U.S.C.A. [4] Bankruptcy k2799 Objections 51k2802 k. Proceedings. Most Cited Cases Mere allegations of bad faith will not suffice; objecting party must demonstrate debtor's bad faith by specific evidence in order to prevent debtor from amending his exemption schedule. Fed.Rules Bankr.Proc.Rule 1009, 11 U.S.C.A. [5] Bankruptcy k2794 Claim of Exemption or Lien Avoidance 51k2796 k. Amendment. Most Cited Cases Bankruptcy k2799 Objections 51k2802 k. Proceedings. Most Cited Cases In deciding whether to allow debtor to amend his exemption schedule, bankruptcy court has responsibility, as finder of fact, to determine credibility and whether there was intent to conceal. Fed.Rules Bankr.Proc.Rule 1009, 11 U.S.C.A. [6] Bankruptcy III The Case 51III(F) Schedules and Statement of Affairs 51k2322 k. Requisites in General. Most Cited Cases Bankruptcy IX Administration 51IX(A) In General 51k3022 k. Debtor's Duties in General. Most Cited Cases Debtor has paramount duty to carefully consider all questions included in bankruptcy schedules and statement of financial affairs (SOFA) and to see that each is answered accurately and completely. [7] Bankruptcy k2794 Claim of Exemption or Lien Avoidance 51k2796 k. Amendment. Most Cited Cases Bankruptcy k2799 Objections 51k2802 k. Proceedings. Most Cited Cases Bankruptcy court did not clearly err in finding that Chapter 7 debtor had acted in bad faith, and with at least a reckless disregard for the truth, of kind that would preclude him from amending his exemption schedule, in only scanning bankruptcy schedules that he signed under oath as being both accurate and complete, and in relying entirely on counsel to properly complete them using information which debtor had provided. Fed.Rules Bankr.Proc.Rule 1009, 11 U.S.C.A. [8] Bankruptcy k2794 Claim of Exemption or Lien Avoidance 51k2796 k. Amendment. Most Cited Cases Bankruptcy court did not need to make finding of prejudice in order to deny Chapter 7 debtor leave to amend his exemption schedule based on his bad faith in failing to ensure that schedules were answered accurately and completely, as demonstrated by numerous errors and omissions thereon and debtor's admission that he had not read all of his

6 Page B.R. ----, 2012 WL (E.D.Mich.), 110 A.F.T.R.2d (Cite as: 2012 WL (E.D.Mich.)) schedules prior to signing them, but had instead merely scanned the information therein. Fed.Rules Bankr.Proc.Rule 8013, 11 U.S.C.A. [9] Bankruptcy k2771 Property Exempt 51k2779 k. Pensions or Benefits. Most Cited Cases Two requirements must be satisfied in order for debtor to claim funds as exempt retirement funds pursuant to bankruptcy exemption statute: (1) funds must be retirement funds; and (2) funds must be in an account that is exempt from taxation under one of enumerated provisions of the Internal Revenue Code. 11 U.S.C.A. 522(d)(12). [10] Bankruptcy k2771 Property Exempt 51k2779 k. Pensions or Benefits. Most Cited Cases Chapter 7 debtor was not entitled to exempt, as retirement funds held in tax exempt account, the cashier's check that he had purchased using prepetition distribution of funds from state as retroactive retirement benefits; funds were not held in tax exempt account, as required by federal bankruptcy exemption, when bankruptcy petition was filed. 11 U.S.C.A. 522(d)(12). Harvey Altus, Law Offices of Harvey Altus, Farmington Hills, MI, for Appellant. Daniel M. Katlein, Allard & Fish, Detroit, MI, for Appellee. ORDER AFFIRMING BANKRUPTCY COURT'S DECISION GEORGE CARAM STEEH, District Judge. *1 Debtor Appellant Cecil Rice appeals from a decision of the U.S. Bankruptcy Court, Eastern District of Michigan, Southern Division, sustaining the trustee's objection to the debtor's amended claim of exemptions. On March 15, 2011, Rice filed for chapter 7 protection. On May 5, 2011, Rice filed an amended Schedule C, claiming an exemption for a cashier's check for retirement funds in the amount of $95,000 and for garnished retirement funds in the amount of $18, pursuant to 522(d)(12) of the Bankruptcy Code. The trustee filed an objection to the debtor's amended claim of exemptions. On August 2, 2011, the Bankruptcy Court issued an opinion and an order sustaining the trustee's objection based on its findings that: (1) the debtor either intentionally or recklessly concealed the property at issue; and (2) even if the debtor had not acted in bad faith in failing to disclose the property, the Bankruptcy Court would have denied the exemption for failing to meet the exemption requirements. The appeal is fully briefed. The court finds that oral argument is not necessary. See Local Rule 7.1(f). For the reasons stated below, the court AFFIRMS the Bankruptcy Court's opinion sustaining the trustee's objection. BACKGROUND On October 2, 2009, Flagstar Bank obtained a judgment against Rice and others in the amount of $1,120, Flagstar began collection proceedings, including garnishing Rice's accounts at Comerica Bank on July 21, Rice filed an objection to the garnishment and as a result Flagstar released the garnished funds. On November 15, 2010, Rice received $107, in retroactive retirement benefits from the State of Michigan by direct deposit into his checking account at Comerica Bank. The following day, Rice withdrew $100,000 from the account and purchased a cashier's check made payable to himself. The cashier's check was originally held by Rice in a safe deposit box at Comerica Bank. On January 6, 2011, Flagstar garnished Rice's accounts at Michigan First Credit Union. Rice filed an objection to the garnishment and the objection was pending when Rice filed his chapter 7 petition on March 15, On February 15, 2011, Flagstar Bank conducted a creditor's examination of Rice. Rice testified that his income was comprised of his pension, retirement, and disability benefits, and that these were deposited into his Comerica Bank account. At one point in time, Rice transferred some of that money from Co-

7 Page B.R. ----, 2012 WL (E.D.Mich.), 110 A.F.T.R.2d (Cite as: 2012 WL (E.D.Mich.)) merica to Michigan First Credit Union. At the exam, Rice disclosed that he had a $100,000 cashier's check in a safe deposit box at Comerica Bank but that he had removed the cashier's check from the safe deposit box earlier that day for fear that it might be garnished by Flagstar. Upon removal of the cashier's check from the safe deposit box, Rice negotiated the $100,000 cashier's check, depositing approximately $5,000 into his Comerica account in order to pay bills and with the remaining balance purchased the $95,000 cashier's check payable to himself. The $95,000 cashier's check was kept someplace in Rice's home at all times from February 15, 2011, until shortly before the first meeting of creditors held in Rice's bankruptcy case on April 20, *2 The Trustee discovered the existence of the cashier's check and the garnished funds upon questioning the debtor at the first meeting of creditors on April 20, 2011, and at an adjourned meeting of creditors held on May 4, On May 5, 2011, the debtor filed amended Schedules pursuant to which he disclosed and sought to exempt both the $95,000 cashier's check and the $18, in garnished funds pursuant to 11 U.S.C. 522(d)(12). The Trustee objected to the claimed exemptions and the Bankruptcy Court held an evidentiary hearing on July 12, The Bankruptcy Court heard testimony from Rice acknowledging numerous omissions and errors in the debtor's Schedules and State of Financial Affairs as originally filed, including but not limited to the failure by the debtor to schedule as an asset a cashier's check payable to himself in the amount of $95,000 that was in his possession on the petition date as well as his interest in funds in the amount of $18, in his credit union account and subject to a garnishment proceeding on the petition date. At the hearing, Mark Altus, the attorney representing Rice during the time Flagstar Bank was garnishing funds on the Comerica and Michigan Credit Union accounts, testified. Altus testified that he and Flagstar's attorney believed the funds to be exempt, and Flagstar's garnishment of the Comerica account was released based on that belief. He testified that Rice had informed him of the funds withdrawn from the Comerica account. After considering the evidence, the Bankruptcy Court determined that the debtor's failure to list the cashier's check and the garnished funds in his Schedules was intentional, or in reckless disregard of his duty of full disclosure and, as a result, the Bankruptcy Court sustained the Trustee's objection to the debtor's amended claims of exemption. The Bankruptcy Court further ruled that even if the debtor had not acted in bad faith in failing to disclose assets, the debtor's claims of exemption pursuant to 522(d)(12) would be denied as the funds were not in an account exempt from taxation under one of the sections of the Internal Revenue Code enumerated in 522(d)(12) on the petition date, as required by 522(d)(12), and that 522(b)(4)(C) was inapplicable to the case. STANDARD OF REVIEW [1] When a bankruptcy court's decision is appealed to the district court, the district court applies the standards of review normally applied by a federal appellate court. In re H.J. Scheirich Co., 982 F.2d 945, 949 (6th Cir.1993). Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses. Fed. R. Bankr.P A finding is clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (citation omitted). The district court reviews the bankruptcy court's legal conclusions de novo. Investors Credit Corp. v. Batie, 995 F.2d 85, 88 (6th Cir.1993). ANALYSIS *3 [2][3][4][5] Federal Rule of Bankruptcy Procedure 1009 provides that a voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed. A debtor is allowed to freely amend his schedules, including his schedule of exemptions, at any time before the case is closed, provided there is no bad faith or concealment of property. Lucius v. McLemore, 741 F.2d 125, 127 (6th Cir.1984). In the context of an amendment of exemptions, bad faith is determined by an examination of the totality of the circumstances. Mere allegations of bad faith will not suffice; the objecting party must demonstrate the bad

8 Page B.R. ----, 2012 WL (E.D.Mich.), 110 A.F.T.R.2d (Cite as: 2012 WL (E.D.Mich.)) faith of the debtor by specific evidence. In re Colvin, 288 B.R. 477, 481 (Bankr.E.D.Mich.2003) (citations omitted). In addition, the Bankruptcy Court has the responsibility, as the finder of fact, to determine credibility and whether there was intent to conceal. In re OBrien, 443 B.R. 117, 141 (Bankr.W.D.Mich.2011), quoting In re Millsaps, 774 F.2d 1163 (6th Cir.1985) (unpublished). Rice argues that the Bankruptcy Court's finding of intentional or reckless omission of assets is clearly erroneous as it was based only on his own testimony that he scanned the information in the schedules. He suggests the fact that he admitted that the check existed during his creditor's examination and at the 341 hearing suggests the concealment was unintentional. Rice then argues the only realistic factual conclusion to be made is that the omissions were inadvertent. [6] A debtor's schedules and statement of financial affairs are signed under penalty of perjury as provided for in Federal Rule of Bankruptcy Procedure A debtor has a paramount duty to carefully consider all questions included in the Schedules and Statement [of Financial Affairs] and see that each is answered accurately and completely. In re Colvin, 288 B.R. 477, (Bankr.E.D.Mich.2003), quoting Casey v. Kasal, 217 B.R. 727, 734 (Bankr.E.D.Pa.1998). [7] In this case, the Bankruptcy Court heard testimony from Rice and assessed his credibility. The Bankruptcy Court noted that, in signing his schedules, Rice declared under penalty of perjury that he had read the schedules and that they were true and correct to the best of his knowledge. Contrary to this representation, Rice later testified that he did not read all the schedules, but just scanned them. There were several errors in his schedules. The Bankruptcy Court concluded that the omissions were at least reckless and therefore sustained the Trustee's objection. The Bankruptcy Court also concluded, based on Rice's testimony, that his contention that the omissions were unintentional was not credible. The Bankruptcy Court viewed the totality of the circumstances in making these factual determinations. This court does not find the Bankruptcy Court's factual findings, that Rice was either reckless or intentional in omitting the check, to be clearly erroneous. *4 [8] Rice also argues that no party in interest can demonstrate that its interests have been prejudiced by Rice's omission. Rice notes that prejudice to a party in interest may serve to support a denial of the debtor's right to amend his schedules. He argues the bankruptcy court made no finding of prejudice in this case. However, as Appellee notes, the Bankruptcy Court did not need to make a finding of prejudice. See In re Daniels, 270 B.R. 417, 425 (Bankr.E.D.Mich.2001) ( Bad faith on the part of the debtor or prejudice to creditors are... grounds justifying a bankruptcy court's disallowance of a debtor's amended claim of exemption upon a timely filed objection to it. ) (emphasis added). Because the Bankruptcy Court found bad faith on the part of the debtor, the Bankruptcy Court did not need to examine prejudice to the parties. It appears Rice abandoned this argument after the Appellee pointed out the deficiency in it. Regardless, Rice's argument fails. Rice also challenges the Bankruptcy Court's alternate determination that, even if the debtor had not acted in bad faith, the claimed exemption should be denied as the funds were not in an account exempt from taxation under one of the sections of the Internal Revenue Code enumerated in 522(d)(12) on the petition date, as required by 522(d)(12), and that 522(b)(4)(C) was inapplicable to the case. Rice argues the 522(d)(12) exemption should interpreted in light of 522(b)(4)(C). On that basis, Rice claims the retirement funds did not lose their exempt character as a result of being transferred to cash. [9][10] 11 U.S.C. 522(d)(12) permits a debtor to exempt [r]etirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of This exemption contains two requirements: (1) that the amount must be retirement funds; and (2) that the retirement funds must be in an account that is exempt from taxation under one of the provisions of the Internal Revenue Code set forth therein. Doeling v. Nessa, 426 B.R. 312, 314 (8th Cir. BAP 2010). Because the $95,000 cashier's check and the $18, in garnished funds were not in accounts exempt from taxation under the relevant Internal Revenue Code sections at the time Rice filed his bankruptcy case, the Bankruptcy Court correctly found that the funds at issue were not in an exempt retirement account.

9 Page B.R. ----, 2012 WL (E.D.Mich.), 110 A.F.T.R.2d (Cite as: 2012 WL (E.D.Mich.)) Rice argues the retirement funds do not lose their exempt status as a result of being transferred to cash, citing 522(b)(4)(C). 11 U.S.C. 522(b)(4)(C) provides: A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986, under section 401(a)(31) of the Internal Revenue Code of 1986, or otherwise, shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such direct transfer. SO ORDERED. E.D.Mich.,2012. In re Rice --- B.R. ----, 2012 WL (E.D.Mich.), 110 A.F.T.R.2d END OF DOCUMENT *5 As noted by the Bankruptcy Court, this section has been applied in situations involving a direct transfer from one qualified account to another qualified account. See Doeling, 426 B.R. at Such trustee-to-trustee transfers have been found to not negate the debtor's ability to claim an exemption. Rice fails to cite any case applying 522(b)(4)(C) to a transfer from retirement funds to cash. The case cited by Rice in support of his argument that funds do not lose their exempt status, In re Hanson, 41 B.R. 775 (Bankr.D.N.D.1984), involves tracing proceeds of the sale of real estate under North Dakota law and was decided more than twenty years before 522(b)(4)(C) was adopted. This court agrees with the Bankruptcy Court's findings that 522(b)(4)(C) does not apply here and that the funds at issue are not exempt under 522(d)(12). Finally, Rice argues that the funds are protected under state law and that he would attempt to further amend his schedules to avail himself of the Michigan exemptions. However, as noted by Appellee, the Bankruptcy Court did not consider the issue and therefore the issue is not before this court on appeal. See Hood v. Tenn. Student Assistance Corp. (In re Hood), 319 F.3d 755, 760 (6th Cir.2003) (recognizing that an appellate court shall not consider arguments raised for the first time on appeal unless failure to do so will result in a miscarriage of justice). The court finds no appropriate reason to consider Rice's Michigan exemption argument. CONCLUSION For the reasons set forth above, the court AFFIRMS the Bankruptcy Court's opinion sustaining the trustee's objection.

10 Page 1 Slip Copy, 2012 WL (E.D.Mich.) (Cite as: 2012 WL (E.D.Mich.)) Only the Westlaw citation is currently available. United States District Court, E.D. Michigan, Southern Division. In re Nehya AHMED, Debtor. Nehya Ahmed, Appellant, v. Michael A. Stevenson, Appellee. No Sept. 29, Marshall D. Schultz, Marshall D. Schultz Assoc., Southfield, MI, for Appellant. Sonya N. Goll, Stevenson & Bullock PLC, Southfield, MI, for Appellee. OPINION AND ORDER AFFIRMING THE BANKRUPTCY COURT ROBERT H. CLELAND, District Judge. *1 Debtor, Nehya Ahmed, seeks to exempt from the bankruptcy estate purported retirement funds she received in her divorce. The money at issue came from her former husband's retirement account but, by court order, the money paid Debtor her equity in the former couple's house. The bankruptcy court concluded that the money failed to qualify as retirement funds subject to exemption, and Debtor appealed. Jurisdiction arises under 28 U.S.C. 158(a), and this court reviews the law without deference. See In re Alam, 359 B.R. 142, 145 (6th Cir.BAP2006); In re Hurtado, 342 F.3d 528, 531 (6th Cir.2003). During the divorce the state court awarded Debtor fifty percent of the husband's 401 k account. Debtor received and deposited that money, which is not at issue. In addition the state court ordered the husband to pay Debtor $43,553 of the equity in one of the couple's houses. The state court's order warned that [Debtor's] marital share from the real estate... shall be paid from [the husband's] half of his 401 K if he does not pay it within 90 days from [this] Judgment of Divorce. (Divorce Or. 10, Dkt. # 2 1 at 17.) The husband failed to pay, the state court ordered the money's removal from the 401 k, and the 401 k administrator, after withholding tax, paid Debtor, who about four weeks later placed the money in a new individual retirement account ( IRA ). In May, 2011, around a month after opening the IRA, Debtor declared Chapter 7 bankruptcy. Under 11 U.S.C. 522(d)(12), a debtor may exempt from the bankruptcy estate money that both (1) constitutes retirement funds and (2) resides in a fund or account exempt from taxation under any of several sections of the Internal Revenue Code. Debtor proposes mainly that the house equity payment she received equals retirement funds because the payment came from a 401k retirement account. It is tempting to follow the decisions, cited by Debtor, that exempt under Section 522(d)(12) money received from an inherited IRA. E.g., In re Chilton, 674 F.3d 486 (5th Cir.2012); In re Nessa, 426 B.R. 312 (8th Cir.BAP2010). These decisions conclude, correctly, that retirement funds can mean money that someone other than the debtor saved for retirement. The defining characteristic of retirement funds, one of these authorities explains, is the purpose they are set apart for, not what happens after they are set apart. In re Chilton, 674 F.3d at 489. But this logic has its limits. If a retiree withdraws money he saved for retirement and uses it to buy a car, the dealer does not then hold retirement funds. Money set apart for retirement cannot remain retirement money forever. A person receiving an inherited IRA gets what the term inherited IRA suggests; a retirement account passes, more or less intact, to a named beneficiary. See, e.g., In re Chilton, 674 F.3d at ; In re Nessa, 426 B.R. at 313; In re Seeling, 471 B.R. 320, 321 (Bankr.D.Mass.2012). The house equity payment is different. The state court seized money from a 401 k and used it to pay a debt the husband owed Debtor. In the cases involving an inherited IRA a saver handed his piggy bank to another person. In this case his bank was shattered, and his money taken, for a purchase. Money set aside became currency in the stream of commerce. *2 The house equity payment Debtor received no

11 Page 2 Slip Copy, 2012 WL (E.D.Mich.) (Cite as: 2012 WL (E.D.Mich.)) longer constituted retirement funds. Regardless of tax status, the payment could receive no protection under Section 522(d)(12) unless and until Debtor converted the money (back) to retirement funds. And although Debtor accomplished this conversion by placing the money in a new IRA, the transfer to a new IRA affected the money's tax status. The federal tax code limits the amount of the IRA contribution that Debtor could exempt from taxation to the lesser of either $5,000 or her taxable income for the year. 26 U.S.C. 408(a)(1); id. 219(b). FN1 Because Debtor in 2011 retained an income of nearly $20,000, all but $5,000 in the IRA remains subject to taxation. The bankruptcy court properly allows Debtor to exempt the $5,000. FN1. Section 408(a)(1) states: Except in the case of a rollover contribution described in subsection (d)(3)[,] section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A) [i.e., $5,000]. pay Debtor her equity in the house will result in the husband's having to pay Debtor a portion of his 401 k. Rather, the state court order says that the 401 k money must stand as Debtor's equity in the house. (Divorce Or. 10, Dkt. # 2 1 at 17 ( [Debtor's] marital share from the real estate... shall be paid from [the husband's] half of his 401 K[.] ).) The state court in effect ordered the 401 k money seized, liquidated, and used to purchase Debtor out of the residence. Debtor can exempt from the bankruptcy estate no more than $5,000 of the house equity payment. Accordingly, IT IS ORDERED that the bankruptcy court's October 19, 2011, and November 18, 2011, opinions and orders are AFFIRMED. E.D.Mich.,2012. In re Ahmed Slip Copy, 2012 WL (E.D.Mich.) END OF DOCUMENT Debtor claims that the bankruptcy court misapplied Section 408(a)(1), because the house equity payment qualifies as a rollover contribution. But Debtor never says how the payment fulfills the description of rollover contribution in one of the listed sections. She discusses subsection (d)(3), which says that a rollover contribution... meets the requirements of both of two subparagraphs, but she never explains how the payment satisfies each requirement in both subparagraphs. Debtor argues that, whatever the house equity payment's purpose, Debtor could treat the money as a tax-free rollover into her new IRA. She cites 26 U.S.C. 402(c)(2), but that section assumes the answer to the issue, as it discusses the tax status only of an eligible rollover distribution. She cites no case authority. And her theory suffers the same defect as the comparison to inherited IRAs. The state court order does not say merely that the husband's failure to

12 Page 1 Slip Copy, 2012 WL (N.D.Ohio) (Cite as: 2012 WL (N.D.Ohio)) Only the Westlaw citation is currently available. United States District Court, N.D. Ohio. Carla P. DUNCAN, Plaintiff Appellant, v. DEUTSCHE NATIONAL BANK TRUST COMPANY et al., Defendants Appellees. No. 1:11 CV Sept. 20, Marc E. Dann, Grace M. Doberdruk, Law Office of Marc Dann, Shaker Heights, OH, for Plaintiff Appellant. Darryl E. Gormley, Edward A. Bailey, Reimer, Arnovitz, Chernek & Jeffrey, Twinsburg, OH, for Defendants Appellees. OPINION AND ORDER AND JUGMENT JAMES S. GWIN, District Judge. *1 Carla P. Duncan appeals the bankruptcy court's decision abstaining from her adversary claims against Appellees Deutsche Bank National Trust Company (Deutsche Bank) and IndyMac Mortgage Services (IndyMac). FN1 The appellees are creditors who have filed proofs of claim in her Chapter 13 bankruptcy. [Doc. 1 ]; see 28 U.S.C. 158(a). Because the bankruptcy court did not abuse its discretion when it declined to adjudicate Duncan's adversary complaints, this Court AFFIRMS the abstention. FN1. IndyMac Mortgage Services is a division of OneWest Bank, FSB. The Court refers to both entities, together, as IndyMac. I. Background On January 20, 2010, Deutsche Bank brought a foreclosure proceeding against Duncan's primary residence at 1068 Quilliams Road in Cleveland Heights, Ohio. [Doc. 11 1, at 10]. The Cuyahoga County Court of Common Pleas gave Duncan until May 3, 2010, to respond to the foreclosure complaint, but she missed the deadline by more than three weeks. [Id. at 6]. Accordingly, on September 2, 2010, the court struck both Duncan's answer and her counterclaims against Deutsche Bank and its loan servicer IndyMac. [Id. at 3]. Meanwhile, a second foreclosure proceeding was pending in state court against Duncan's rental property at 3918 East 120th Street in Cleveland. The parties have provided few details about this case, but Appellees' counsel represented to the bankruptcy court that Duncan successfully filed an answer and counterclaims in that state-court case. See [Doc at 4:23 5:6.] On August 25, 2010, Deutsche Bank moved for a default judgment of foreclosure on Duncan's primary residence. Before the state court could hold a hearing on that motion, Duncan filed her bankruptcy petition in the United States Bankruptcy Court for the Northern District of Ohio. See [Doc at 2]; [Bankr.N.D. Ohio, No , Doc. 1 ] Duncan's filing caused both state foreclosure actions to be stayed under 11 U.S.C. 362(a). Deutsche Bank and IndyMac responded by filing proofs of claim in Duncan's bankruptcy proceeding, see 11 U.S.C Duncan, in turn, filed two adversary complaints against Deutsche Bank and IndyMac in the bankruptcy court. [Bankr.N.D. Ohio, No , Doc. 1 (the personal residence) & No , Doc. 1 (the rental property).] Those adversary complaints asserted claims similar to the counterclaims Duncan had filed in her state-court rentalproperty foreclosure case and had unsuccessfully sought to file in her state-court primary-residence foreclosure case. Generally, Duncan alleged that Deutsche Bank and IndyMac violated federal and state law in handling her mortgages, and that their actions in servicing and attempting to enforce her debts gave rise to causes of action for damages. In particular, Duncan sought damages for alleged violations of state common law, the Fair Debt Collection Practices Act (FDCPA), the Real Estate Settlement Procedures Act (RESPA), and the Ohio Consumer Sales Protection Act. Id. In addition, Duncan asked the bankruptcy court to find that her debt on the rental-property was unsecured to the extent that it exceeded the value of the property itself. [Bankr.N.D. Ohio, No , Doc. 1, at ] Deutsche

13 Page 2 Slip Copy, 2012 WL (N.D.Ohio) (Cite as: 2012 WL (N.D.Ohio)) Bank and IndyMac jointly moved the bankruptcy court to dismiss or abstain from hearing Duncan's adversary complaints. [Bankr.N.D. Ohio, No , Doc. 24 ] *2 On August 18, 2011, the bankruptcy court held a hearing on the motion to dismiss. [Doc ] Although the adversary complaints requested only damages (save a pro forma prayer for such other and further relief as the Court may deem just and proper, [Bankr.N.D. Ohio, No , Doc. 1, at 14] ), the hearing focused almost exclusively on whether the liens were validly assigned. Duncan's complaints never spoke to this issue. The bankruptcy court ultimately abstained from exercising jurisdiction over any part of Duncan's adversary proceedings. [Doc. 11 2, at 18 19]; 28 U.S.C. 1334(c)(1) (permitting abstention in the interest of comity with State courts or respect for State law ). The bankruptcy court found that statelaw issues predominated and that the complaints' claims could be resolved in state court. See [Bankr N.D. Ohio, No , Doc. 40.] This appeal followed. II. Analysis Duncan puts forth two claims of error by the bankruptcy court. First, she claims that the bankruptcy court improperly determined that the adversary complaints were not core proceedings. And second, she claims that the bankruptcy court's decision to abstain was premised on this improper determination. Each claim of error is addressed in turn. A. The Claims as Core Proceedings At the outset, it is important to determine exactly what Duncan asks this Court to review. Duncan originally raised eight claims in her personal residence complaint and fourteen claims in her rental property complaint. FN2 She contends that the bankruptcy court determined that all of her claims are non-core proceedings. [Doc. 6 at 11.] As previously mentioned, this is incorrect-the bankruptcy court agreed that the fourteenth claim in the rental property complaint is a core proceeding. [Doc at 17.] Of the remaining twenty-one claims (all eight from the personal residence complaint and thirteen from the rental property complaint), her briefing on appeal addresses only the FDCPA claims of each complaint. Therefore, this Court need not reach the question of whether the other nineteen claims were properly deemed non-core proceedings. FN2. Duncan's personal residence complaint only alleged eight claims against the Defendants, even though the last claim is Count Nine. [Bankr.N.D. Ohio, No , Doc. 1, at 13.] The Claims are misnumbered, and skip Count Seven in that complaint. For clarity purposes, this Court will refer to the claims as numbered in the bankruptcy court's complaints. This Court reviews de novo a bankruptcy court's determination as to whether an adversary claim is a core proceeding. Hughes Bechtol, Inc. v. Construction Mgmt., Inc., 144 B.R. 755, 756. (S.D.Ohio 1992). The claims raised in the complaints before the bankruptcy judge differ dramatically from those raised on appeal, though they are shrouded in similar language. Before the bankruptcy judge, Duncan's FDCPA claims focus exclusively on the method of debt collection. [Bankr.N.D. Ohio, No , Doc. 1, at 7; No , Doc. 1, at 7.] On appeal, the FDCPA claims focus on whether the negotiation of Duncan's note was proper, and whether the Defendants are proper owners of the note. Effectively, Duncan complained in the bankruptcy court about how the Defendants attempted to collect, whereas on appeal she complains about if the Defendants may collect at all. *3 Perhaps anticipating this concern, Duncan speaks to this issue in her briefing on appeal. She contends that the complaints' recitation of certain statutory elements triggers adjudication of the validity of the Bank's liens and debts. [Doc. 6, at 11 (citing 28 U.S.C. 157(b)(2)(K) & (b)(2)(i)).] But invoking a statute does not state a claim, for a complaint must include factual allegations that specify the statute's applicability. While Duncan is correct that an FDCPA claim can be founded on the allegations raised in her briefing on appeal, see Wallace v. Wash. Mut. Bank, F.A., 683 F.3d 323, 326 (6th Cir.2012), this does not mean that every FDCPA claim implicitly incorporates such an allegation. Duncan's current arguments about the complaints' core status lack merit as they do not relate to any adequately pleaded claims in this matter. See Bryant v. Wells Fargo Bank, No. 5:10 CV 237 D, 2012 WL , at *4 (E.D.N.C. Mar.19, 2012) (adopting bankruptcy

14 Page 3 Slip Copy, 2012 WL (N.D.Ohio) (Cite as: 2012 WL (N.D.Ohio)) court's recommendation to dismiss a claim because the argument raised on appeal cannot be found in the amended complaint's vague FDCPA claim ); cf. In re John Richards Homes Bldg. Co. LLC, 405 B.R. 192, 229 (E.D.Mich.2009) ( Arguments... that are woefully underdeveloped are deemed waived. ). This, then, leaves us with a claim of error with nothing to review. Of the twenty-two claims, Duncan purports to request review of twenty-one of them. Her briefing, however, only discusses two of the twenty-one claims. And those two claims were not properly before the bankruptcy court to begin with. But even if this Court were to undertake an individualized de novo analysis of every claim pleaded in the original complaints, the result would be the same. Courts have applied the label noncore to causes of action with the following traits: (1) is not specifically identified as a core proceeding under 157(b)(2)(B)-(N); (2) existed prior to the filing of the bankruptcy case, (3) would continue to exist independent of the provisions of Title 11, and, (4) in which the parties['] rights, obligations or both are not significantly affected as a result of the filing of the bankruptcy case. Matter of Walton, 104 B.R. 861, 864 (Bankr.S.D.Ohio 1988). Of the twenty-one claims deemed non-core by the bankruptcy court, eighteen are purely state-law claims that existed prior to the filing of the bankruptcy petition, are independent of the provisions of Title 11, and are unaffected by the debtor's bankruptcy status. Of the three remaining federal claims the two FDCPA claims and a RESPA claim further inspection belies Duncan's contention. FN3 As previously discussed, the FDCPA claims have nothing to do with the bankruptcy petition and everything to do with a private right of action to contest unlawful debt collection practices. Likewise, the RESPA claim alleges a failure to abide by federal regulations requiring the conduction of an investigation if the parties disagree as to mortgagerelated fees. Resolution of those claims would be of no assistance in the orderly distribution of the estate's assets. The bankruptcy court correctly assessed that all but one of the claims alleged in the complaints are non-core proceedings. FN3. Duncan contends in her briefing on appeal that this Court ought to reclassify her FDCPA claims as core because they are premised upon a violation of federal law. [Doc. 6, at 15.] But, a claim is not a core proceeding simply because it is federal in character, nor is it a non-core proceeding because it is premised on state law. Rather, a core proceeding is one that arise[s] in a bankruptcy case or under Title 11. The detailed list of core proceedings in 157(b)(2) provides courts with ready examples of such matters. Stern v. Marshall, U.S.,, 131 S.Ct. 2594, 2605, 180 L.Ed.2d 475 (2011). B. The Bankruptcy Court's Abstention *4 This Court reviews a bankruptcy court's decision to abstain from an adversary proceeding under 28 U.S.C. 1334(c)(1) for an abuse of discretion. McDaniel v. ABN Amro Mortgage Group, 364 B.R. 644, 650 (S.D.Ohio 2007). An abuse of discretion occurs when this Court is left with a definite and firm conviction that the bankruptcy court improperly applied the law, used an erroneous standard, or committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors. Id. A bankruptcy court may abstain from an adversary proceeding if doing so is in the interest of justice, or in the interest of comity with State courts or respect for State law U.S.C. 1334(c)(1); see also Matter of Tremaine, 188 B.R. 380, 384 (Bankr.S.D.Ohio 1995) (permitting a bankruptcy court to exercise its discretion to abstain in favor of another court in certain circumstances ). Abstention... is an extraordinary and narrow exception to the duty of a... [c]ourt to adjudicate a controversy properly before it. Hughes Bechtol, Inc., 107 B.R. at 559 (quoting Col. River Water Conserv. Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) ). In determining whether permissive abstention under 1334(c)(1) is proper, the following nonexclusive factors are considered: (1) the effect or lack of effect on the efficient ad-

15 Page 4 Slip Copy, 2012 WL (N.D.Ohio) (Cite as: 2012 WL (N.D.Ohio)) ministration of the estate if a court abstains; (2) the extent to which state law issues predominate over bankruptcy issues; (3) the difficulty or unsettled nature of the applicable state law; (4) the presence of a related proceeding commenced in state court or other non-bankruptcy court; (5) the jurisdictional basis, if any, other than 28 U.S.C. 1334; (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (7) the substance rather than form of an asserted core proceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court; (9) the burden of [the bankruptcy] court's docket; (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the proceeding of non-debtor parties; and (13) any unusual or other significant factors. Mann v. Waste Mgmt. of Ohio, Inc., 253 B.R. 211, 214 (N.D.Ohio 2000); see also In re Weldon F. Stump & Co., 373 B.R. 823, 828 (Bankr.N.D.Ohio 2007). Mechanical consideration of each factor is less important than appropriate attention to the jurisdictional overlap between federal and state courts in the context of bankruptcy. See In re Weldon F. Stump & Co., 373 B.R. at 828 ( At their center, what these factors seek to do is to implement the function and purpose served by 1334(c)(1): in deference to federalism, ensure that the jurisdiction of the bankruptcy court is exercised only when appropriate to the expeditious disposition of bankruptcy cases. ). *5 The bankruptcy court considered the factors articulated in Mann during its hearing on whether to abstain. Specifically, that court determined that [s]tate law issues predominate over the bankruptcy issues, that there are are apparently two related [s]tate [c]ourt proceedings that were started before the bankruptcy case was filed, that the causes of action are capable of being separated from the main bankruptcy law, and that the remaining considerations are either neutral or not applicable in this case. [Doc. 11 2, at ] That court also took into consideration that the vast majority of the claims raised by Duncan are non-core proceedings. It is this last factor, and nothing else, upon which Duncan rests her appeal. Her second claim of error is entirely based on the alleged core/non-core error that this Court considered and rejected above. Duncan presents this Court with no other argument as to why it should be left with a definite and firm conviction that the bankruptcy court erred. Furthermore, this Court agrees with the statements made by the bankruptcy court during the hearing as to why permissive abstention was appropriate. As a housekeeping matter, it bears noting that the core claim in Count Fourteen of the rental residence complaint is not, standing alone, an adversary proceeding. A proceeding to determine the value of a claim secured by a lien on property is a contested matter. See Fed. R. Bankr.P and Advisory Committee Note; Matter of Beard, 112 B.R. 951, 955 (Bankr..N.D.Ind.1990 ) (unlike a direct attack on a lien, the determination of secured status is a contested matter, and need not give rise to an adversary proceeding); see also In re Hudson, 260 B.R. 421, 433 (Bankr.W.D.Mich.2001) (for purposes of identifying an adversary proceeding under Rule 7001 of the Federal Rules of Bankruptcy Procedure, [t]he extent of a lien is not synonymous with the value of collateral; rather extent relates to the identification of the scope of specific property which is subject of the lien ). But see Montano v. First Light Fed. Credit Union (In re Montano), 398 B.R. 47, 55 (Bankr.D.N.M.2008) (adjudication is not improper when a contested matter is misclassified as an adversary proceeding). Count Fourteen asks the bank-

16 Page 5 Slip Copy, 2012 WL (N.D.Ohio) (Cite as: 2012 WL (N.D.Ohio)) ruptcy court to recast the portion of the mortgage lien that exceeds the home's value as unsecured debt. [Bankr.N.D. Ohio, No , Doc. 1, at ] Hence, while Count Fourteen survives as a contested matter, it does not sustain Duncan's adversary complaint. The bankruptcy court may still consider this objection to the rental residence's debts during its proceedings. III. Conclusion The judgment of the bankruptcy court to abstain from the plaintiff-appellant's adversary proceedings is AFFIRMED. IT IS SO ORDERED. N.D.Ohio,2012. Duncan v. Deutsche Nat. Bank Trust Co. Slip Copy, 2012 WL (N.D.Ohio) END OF DOCUMENT