Complete Snapshot Rule Applies to Debtor’s Homestead Exemption

Posted by NCBRC - November 5, 2020

The First Circuit found that a debtor with a legitimate homestead exemption at the time of filing chapter 13 bankruptcy retains that exemption despite post-petition sale of the property, conversion to chapter 7, and failure to reinvest in a new homestead within six months as required by state homestead exemption law. Rockwell v. Hull (In re Rockwell), No. 19-2074 (1st Cir. July 30, 2020), petition for cert. filed (U.S. Oct. 13, 2020) (No. 20-499).

When the debtor filed his chapter 13 petition in August, 2015, he claimed a state exemption in his residence for the maximum amount of $47,500. During the course of his chapter 13 plan, the debtor sold the property for $160,000. He paid off the mortgage debt and contributed the remaining proceeds over and above the amount of his exemption to his plan. In August, 2017, the debtor converted his case to chapter 7. He received a discharge in November, 2017. In December, 2017, the trustee filed an objection to the homestead exemption because the debtor did not reinvest the funds from the sale of his residence in the purchase of a new homestead within six months. After a hearing, the bankruptcy court overruled the objection. The district court affirmed.

On appeal, the First Circuit, relying on White v. Stump, 266 U.S. 310, 313 (1924), found that exemptions are fixed as of the bankruptcy petition date in what is known as the “snapshot rule.” It noted, however, that the snapshot rule may be either “complete”—meaning that a debtor’s exemptions are fixed at the time he files his petition notwithstanding changing circumstances post-petition—or “partial”—meaning that later events may change the status of property claimed as exempt. The court pointed out that section 522(c) enumerates the instances in which the snapshot rule is partial and found that none of those exceptions applied. The court therefore agreed that the complete snapshot rule applied and the debtor’s homestead exemption was unchanged by the post-petition circumstance that he did not use the proceeds from the sale of his homestead to purchase a new homestead within six months. It noted that the court in In re Cunningham, 513 F.3d 318, 320 (1st Cir. 2008), while not using the term “complete snapshot rule,” applied the rule under similar circumstances. The court found that this conclusion best comported with the foundational principle of bankruptcy to afford the debtor a fresh start.

The trustee argued that the complete snapshot rule should not apply here because the debtor originally filed his petition in chapter 13 and, in that chapter, the debtor retains possession of and control over his property post-petition. The court disagreed, finding that the case was properly treated as chapter 7 once the debtor converted and there was no issue of bad faith. Under section 348(a), the chapter 7 petition date is treated as if it were the date the chapter 13 petition was filed. In a footnote, the court also disagreed with the trustee’s depiction of a debtor’s control over property in chapter 13.

In holding that the complete snapshot rule applies, the court disagreed with In re Jacobson, 676 F.3d 1193, 1197 (9th Cir. 2012), and In re Frost, 744 F.3d 384, 385 (5th Cir. 2014), which reached the contrary conclusion. The court noted that those cases predated Harris v. Viegelahn, 135 S. Ct. 1829 (2015), which emphasized the fresh start purpose of bankruptcy, and Law v. Siegel, 571 U.S. 415, 425 (2014), which emphasized the importance of exemptions. In light of the later Supreme Court decisions, the court was unpersuaded by the contrary decisions of its sister circuits.

The court affirmed.

Rockwell 1st Cir. July 2020



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