Ninth Circuit panel affirms that a Chapter 7 Debtor is not allowed to amend homestead exemption to protect post-petition increase in home value.

Posted by NACBA - December 14, 2018

In a 2-1 decision, the panel held that the debtor’s exemption is limited to the specific amount of equity in the home as of the petition date. Wilson v. Rigby, No. 17-35716, 2018 U.S. App. LEXIS 33234 (9th Cir. Nov. 27, 2018). The panel distinguished this case from other Ninth Circuit homestead exemptions which allow a debtor to amend a homestead exemption to capture a post-petition increase in value.In a 2-1 decision, the panel held that the debtor’s exemption is limited to the specific amount of equity in the home as of the petition date.  Wilson v. Rigby, No. 17-35716, 2018 U.S. App. LEXIS 33234 (9th Cir. Nov. 27, 2018). The panel distinguished this case from other Ninth Circuit homestead exemptions which allow a debtor to amend a homestead exemption to capture a post-petition increase in value.

Chapter 7 debtor, Debra Lea Wilson, filed a Chapter 7 bankruptcy on December 18, 2013. Wilson’s one-bedroom condominium was valued at $250,000 and was subject to a $246,440 mortgage. Wilson listed the value of her exemption as $3,560, equal to the equity in her home as of the petition date. In her initial Schedule C, Wilson elected to take the federal exemptions and listed the “wildcard” exemption.

On July 18, 2016, Wilson amended her Schedule C and used Washington state’s homestead exemption.  She claimed “100% of fair market value, up to any applicable statutory limit.” She listed the value of the property at $412,500. Washington applies a sliding scale in which “the homestead exemption amount shall not exceed the lesser of (1) the total net value of the [homestead] . . . or (2) the sum of one hundred twenty-five thousand dollars . . . .” Wash. Rev. Code § 6.13.030.

The chapter 7 trustee, James Rigby, and the Bank, First-Citizens Bank & Trust Co., objected to the amendments.

The panel found that on the petition date the net value of Wilson’s equity in the home was $3,560.00.  Under Washington state law she was therefore limited to only claiming $3,560.00 in her homestead exemption.  The panel distinguished the case of  Alsberg v. Robertson (In re Alsberg), 68 F.3d 312, 314 (9th Cir. 1995) as interpreting California’s homestead exemption which allows a debtor to claim a full homestead exemption (based on demographic criteria rather than the actual value of equity at filing).

The lengthy dissent strongly disagreed with the majority’s interpretation of 9th Circuit caselaw. The dissent indicated that exemption amounts are not irrevocably fixed at filing and that debtors are permitted to assert amended maximum homestead exemption claims greater than claimed in the original schedules.

Practice suggestions:

  • Use an accurate real estate value. You want to insure that your client is claiming all the exemption possible.
  • File a motion to abandon asset within six months of filing under 11 U.S.C. § 554(b) which states “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.” This will force the issue of valuation of the property at an early stage and should cut off any increase that may occur over 2.5 years as in the Wilson case.
  • Claim the full dollar amount of your state’s exemption, regardless of the equity in the property at the time of filing.

The opinion can be found here: In re Wilson Opinion

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