Limit on Right to Amend Homestead Exemption

Posted by NCBRC - September 6, 2016

Notwithstanding a debtor’s absolute right to amend her schedules, “a debtor can only amend her homestead exemption postpetition if on the petition date the debtor could have legally claimed an exemption for the property in question.” Earl v. Lund Cadillac, LLC. (In re Earl), No. 15-1693 (D. Ariz. Aug. 5, 2016).

When she filed for chapter 13 bankruptcy, Rachael Anne Earl, lived with her husband and four children in the house they had lived in for four years (Claiborne property). Ms. Earl did not have title to the Claiborne property because the property had been sold at a trustee’s sale. At the same time, she owned another single-family home that she had been renting to third parties for four years (Sunnyvale property). After her attempts to overturn the trustee sale of the Claiborne property were unsuccessful, and ten months post-petition, Ms. Earl filed a notice of change of address to the Sunnyvale property and amended her schedules to claim a homestead exemption in that property. Her case was converted to chapter 7 and the bankruptcy court granted Lund Cadillac’s objection to the amendment to Ms. Earl’s homestead exemption.

On appeal, the district court examined the interplay between Bankruptcy Rule 1009(a), which permits a bankruptcy debtor to amend her schedules at any time before the case is closed, and the principle that a homestead exemption is determined at the time of the petition date. Because the homestead exemption originated in state law, the court looked to the language of the state exemption statute to determine whether Ms. Earl could have claimed the Sunnyvale exemption under state law.

A.R.S. § 33-1101(A) provides:

“Any person the age of eighteen or over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding one hundred fifty thousand dollars in value, any one of the following . . . [t]he person’s interest in real property in one compact body upon which exists a dwelling house in which the person resides.”

Furthermore, under Arizona law, a party who has not been living in property for over two years abandons her homestead interest in that property. “A.R.S. 33-1104(A)(3). Arizona requires a debtor who owns more than one property to select only one for the homestead exemption. In the event that a debtor sells her homestead property post-petition, she must reinvest the proceeds in the new property if she wants her homestead exemption to apply to the new property.

Turning to the facts as they stood at the petition date, Ms. Earl and her family were living in the Claiborne property, had all their possessions in that property and Ms. Earl did not demonstrate any intention of using the Sunnyvale property as her residence until she lost in her efforts to overturn the trustee sale of the Claiborne property. In fact, she was absent from the property for four years: long enough to constitute abandonment for homestead exemption purposes.

The court concluded that Ms. Earl could not have claimed the Sunnyvale property as exempt when she filed her bankruptcy petition and could not, therefore, claim it as exempt in an amendment to her schedules.

Earl DCt Ariz opinion Aug 2016


Post a Comment

You must be logged in to post a comment.