United States Court of Appeals, Fourth Circuit
United States Court of Appeals, Fourth Circuit
United States Court of Appeals, Fourth Circuit
2d 69
Unpublished Disposition
and divide the net proceeds equally between the bankruptcy estate and Sylvia
Oswald, the debtor's wife. The district court vacated the bankruptcy court's
decision and remanded the action for further proceedings. We reverse and
remand.
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This presumption, however, does not end the inquiry. The trustee may sell both
the debtor's interest and Sylvia Oswald's interest in the jointly owned real estate
only if: (1) the property is not excludable from the bankruptcy estate pursuant
to 11 U.S.C. Sec. 522; and (2) the four statutory elements of 11 U.S.C. Sec.
363(h) are satisfied. Jointly owned property which is not subject to judicial sale
under state law, for example, is excludable from the bankruptcy estate and
therefore cannot be sold by the bankruptcy trustee. See 11 U.S.C. Sec. 522(b)
(2)(B). In evaluating whether a judicial sale is permitted under West Virginia
law, a court must determine, inter alia, whether the interests of others entitled to
the property will be promoted or prejudiced by a sale of the entire parcel of real
estate. See W.Va.Code Sec. 37-4-3. Here, the issue of "prejudice to the nondebtor spouse" must therefore be carefully considered. See Harris v. Crowder,
322 S.E.2d 854, 862 (W.Va.1984).
Moreover, the trustee may not sell both the debtor's interest and Sylvia
Oswald's interest in the property unless the four statutory conditions in 11
U.S.C. Sec. 363(h) are satisfied. Three of the conditions have been stipulated to
by the parties. The fourth condition is similar to the inquiry under West
Virginia law and 11 U.S.C. Sec. 522--that is, whether "the benefit to the estate
of a sale of such property free of the interests of co-owners outweighs the
detriment, if any, to such co-owners." 11 U.S.C. Sec. 363(h)(3). The court
should consider the economic hardship faced by Sylvia Oswald, see In re
Addario, 53 B.R. 335, 338 (Bankr.D.Mass.1985); In re Bell, 80 B.R. 104, 106
(M.D.Tenn.1987), as well as the emotional harm to her arising from the forced
sale. In re Persky, 78 B.R. 657, 664-67 (Bankr.E.D.N.Y.1987) ("any loss, harm,
Here, the bankruptcy court determined that the benefit to the bankruptcy estate
arising from the proposed sale outweighed any detriment to Sylvia Oswald.
Although Sylvia Oswald would be inconvenienced by having to relocate herself
and her two children, the bankruptcy court concluded that she would be able to
finance the purchase of another home based on her equity in the jointly owned
real estate. She also would have the right of first refusal to purchase the
bankruptcy estate's interest in the property at the proposed sale price. See 11
U.S.C. Sec. 363(i). The bankruptcy court therefore authorized the trustee to sell
the property and divide the net proceeds equally between Sylvia Oswald and
the bankruptcy estate.
The district court, however, did not review the bankruptcy court's findings and
conclusions. Although the issue was not raised by the parties or the bankruptcy
court, the district court blocked the proposed sale, holding that the debtor's
interest in the real estate could not be ascertained. In August of 1985, Sylvia
Oswald had instituted a divorce action against the debtor which is still pending
in state court. The jointly owned real estate was therefore marital property and
the district court refused to authorize the proposed sale pending equitable
distribution of the property under West Virginia law. The district court
suggested that the bankruptcy court abstain from deciding the equitable
division of the marital property in order to allow a state court to make the
determination.
In sum, the issue before the district court is the appropriateness of the
bankruptcy court's conclusion that the benefit to the bankruptcy estate arising
from the forced sale outweighed the detriment, if any, to Sylvia Oswald. We
express no opinion on this issue at this time. We do, however, believe that
federal bankruptcy laws require that the district court do so. We thus reverse the
district court's judgment and remand this action for a review of the bankruptcy
court's findings and conclusions in light of 11 U.S.C. Secs. 522(b)(2)(B) &
363(h).
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