At least in Arizona, a debtor cannot change her homestead exemption if the house where she resided at the time of filing is foreclosed.
The debtor owned a house that she rented on the filing date of her chapter 13 petition, later converted to chapter 7. At filing, she claimed a homestead exemption where she resided. She did not have title to the residence because it had been sold in a trustee’s sale.
When the debtor was unable to set aside the trustee’s sale, she filed amended schedules claiming a homestead exemption in the home she rented. According to the debtor’s brief, she had moved into the home that had been rented. The bankruptcy judge nevertheless sustained an objection to the amended exemption and was upheld on Aug. 5 by District Judge Stephen M. McNamee of Phoenix.
There were two competing principles, Judge McNamee said. On the one hand, Bankruptcy Rule 1009(a) arguably grants an absolute right to revise exemption claims because the rule says that schedules “may be amended by the debtor as a matter of course at any time before the case is closed.”
On the other hand, the Supreme Court created the so-called snapshot rule providing that exemptions are fixed at the time of filing.
Arizona law also comes into play by allowing a homestead exemption in one “dwelling house in which the person resides.”
Taking these factors into consideration, Judge McNamee upheld disallowance of the amended exemption because the debtor could not have claimed the exemption at the filing date. He interpreted Arizona law to mean that an initially claimed exemption “will persist through the remainder of the bankruptcy proceeding regardless of subsequent developments.”
It is unclear whether the conclusion would be the same in other states with differently worded exemption statutes.
The opinion does not discuss whether the Supreme Court impliedly modified the snapshot rule by approving Bankruptcy Rule 1009.
The decision has little discussion of the implications of Arizona law allowing a homeowner to sell a homestead and continue the exemption by purchasing a new home within 18 months. Although the opinion mentions the subject, there is also little discussion of the principle that homestead exemptions are to be liberally construed.