Exemptions

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Court May Not Deny Exemption Due to Debtor Misconduct

“A bankruptcy court has no authority under federal law to deny a debtor’s claim of exemptions on a ground that is not specified in the bankruptcy code.” Rucker v. Belew (In re Belew), No. 18-6007 (B.A.P. 8th Cir. Sept. 6, 2018).

Johnny Belew sought to amend his schedules to exempt assets he had failed initially to disclose. The trustee objected. The bankruptcy court found that it had no authority to deny a motion to amend exemptions for any reason not specified in the Code and overruled the trustee’s objections. The trustee appealed. [Read more…] about Court May Not Deny Exemption Due to Debtor Misconduct

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Fourth Circuit Applies Choice of Law Approach to Exemptions

The “state-specific” approach to application of exemption laws applies when determining whether the debtor may use the exemptions from his former domicile state with respect to property located in the bankruptcy state. Sheehan v. Ash, No. 17-1867 (4th Cir. May 4, 2018).

In their Chapter 7 bankruptcy filed in West Virginia, Keith and Phyllis Ash sought to apply the exemption laws of their prior domicile state, Louisiana, to exempt approximately $3,500 in various items of personal property located in West Virginia. The trustee objected to the application of the Louisiana exemption law. The bankruptcy court overruled the objection, and the district court affirmed. Sheehan v. Ash, No. 1:16-cv-109 (N.D. W. Va. June 27, 2017). [Read more…] about Fourth Circuit Applies Choice of Law Approach to Exemptions

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Homestead Post-Petition Sale Proceeds Retain Exempt Status in Chapter 7

Proceeds from the post-petition sale of the Chapter 7 debtor’s homestead did not become part of the bankruptcy estate even though the debtor did not reinvest them in another homestead. Lowe v. DeBerry (In re DeBerry), No. 17-50315 (5th Cir. March 7, 2018).

When Curtis DeBerry filed for Chapter 7 bankruptcy, he exempted his homestead without objection by the trustee. Post-petition, he sold the residence and transferred some of the proceeds to his wife and used the rest to pay unrelated criminal attorney fees. The trustee filed an adversary complaint arguing that, because Mr. DeBerry did not reinvest the proceeds in another homestead within six months as required by the Texas proceeds law, the proceeds were not exempt. The bankruptcy court found in favor of Mr. DeBerry and the district court reversed. [Read more…] about Homestead Post-Petition Sale Proceeds Retain Exempt Status in Chapter 7

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Debtor May Exempt 100% FMV When Value Does Not Exceed Statutory Cap

“There are certain situations where a debtor claiming federal exemptions under § 522 of the Bankruptcy Code can claim an exemption of a 100% interest in an asset. What we do not decide is whether doing so entitles such a debtor to clear title in that asset and any post-petition appreciation.” Ayobami v. Peake, No. 16-20589 (5th Cir. Jan. 3, 2018). [Read more…] about Debtor May Exempt 100% FMV When Value Does Not Exceed Statutory Cap

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“Snapshot” Rule Precludes Amended Homestead Exemption

The snapshot rule governs whether the chapter 13 debtor may claim a homestead exemption for one residence after the residence for which she originally claimed the exemption was subject to foreclosure. Earl v. Lund Cadillac, LLC, No. 16-16428 (9th Cir. Nov. 27 2017) (unpublished).

When Rachael Earl filed her chapter 13 petition she owned two residential properties: Claiborne and Sunnyvale. She resided in the Claiborne property and she claimed it as her homestead exemption. Unable to stop the foreclosure proceedings on that property, however, Ms. Earl converted to chapter 7 and sought to claim an exemption in the Sunnyvale property. The bankruptcy court sustained the unsecured creditor’s objection, and the district court affirmed.White v. Stump, 266 U.S. 310, 313 (1924) teaches that exemptions are fixed at the time of filing the petition. Under this “snapshot” rule, exemptions claimed post-petition may be allowed only if they could have been claimed on the petition date. Likewise, while under Rule 1009(a) the debtor has right to amend her exemptions at any time before the case is closed, the amended exemption must still be one she could have claimed on the petition date.

The court looked to Arizona law to determine whether Ms. Earl could have claimed the Sunnyvale property as her homestead at the time she filed her petition. In Arizona, entitlement to a homestead exemption depends upon the debtor’s actually residing on the property. In this case, Ms. Earl lived, at all relevant times, in the Claiborne residence. The fact that she converted from chapter 13 to chapter 7 did not change the result, even if the court were to agree with those cases looking at exemptions as of the conversion date, as Ms. Earl still lived in the Claiborne property at the time of the conversion.

Because Ms. Earl had no right to claim the exemption under state law, she had no right to amend her bankruptcy exemptions to claim it post-petition. The court affirmed.

Earl 9th Cir opinion Nov 2017

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Trustee $65,000 Fee Application Denied

“Trustee’s plan of action from the minute he was assigned these Chapter 7 cases was abundantly clear: he sought to manufacture equity through the Stipulations and Carve-Outs with the IRS to sell the Homesteads and generate funds that would primarily benefit Trustee, Counsel, and other bankruptcy professionals, while only minimally benefitting unsecured creditors.” Based on this conclusion, the Bankruptcy Appellate Panel for the Tenth Circuit, in a lengthy opinion, upheld the denial of over $65,000.00 in fees for the chapter 7 trustee and his counsel. Jubber v. Bird (In re Bird), Nos. 16-39, Jubber v. Christensen (In re Christensen), 16-40 (B.A.P. 10th Cir. Nov. 30, 2017). [Read more…] about Trustee $65,000 Fee Application Denied

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In Chapter 7 IRA Exemption Protects Funds even if not Rolled Over

In chapter 7, an allowed, unconditional, exemption is removed from the bankruptcy estate, and the property cannot be distributed to creditors even if the exemption loses its exempt status post-petition. Hawk v. Engelhart (In re Hawk), No. 16-20641 (5th Cir. Sept. 5, 2017).

Chapter 7 debtors, Gregory and Marcie Hawk, listed an IRA on their schedules and claimed an exemption for the account funds under Texas exemption law. The trustee did not object within thirty days and the court allowed the exemption. Over several months, the Hawks withdrew funds from the account and did not roll them over into a new retirement account within sixty days as required under Texas law. The bankruptcy court found that the funds had lost their exempt status and ordered the Hawks to turn them over to the trustee. The district court affirmed. [Read more…] about In Chapter 7 IRA Exemption Protects Funds even if not Rolled Over

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Clark v. Rameker Does Not Limit State IRA Exemption

The interpretation in Clark v. Rameker of the federal exemption relating to inherited IRAs does not preclude a state from providing a broader exemption for inherited IRAs in its exemption scheme.

When Waheeda Kara filed for Chapter 7 bankruptcy she opted to use Texas state exemptions and claimed an exemption in an inherited IRA under section 42.0021 of the Texas Property Code. The trustee objected to the exemption arguing that it did not meet the criteria outlined in Clark for an exemptible “retirement fund.” The court found that state exemptions permitted her to exempt the IRA and overruled the objection. In re Kara, No. 16-51059 (Bankr. W.D. Tex. July 13, 2017). [Read more…] about Clark v. Rameker Does Not Limit State IRA Exemption

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Equitable Estoppel vs. Right to Amend Schedules

Where new facts arose to support a claim for homestead exemption and the debtor did not make any misrepresentation upon which the trustee reasonably relied, the bankruptcy court erred in disallowing the exemption based on equitable estoppel. Lua v. Miller (In re Lua), No. 15-56814 (9th Cir. June 27, 2017) (unpublished).

Rosalva Lua claimed a homestead exemption in her initial bankruptcy schedules, removed the claim in her First Amended Schedules, and reasserted it in her Second Amended Schedules approximately three years later. The bankruptcy court sustained the trustee’s objection to the exemption based on equitable estoppel. The district court affirmed. [Read more…] about Equitable Estoppel vs. Right to Amend Schedules