By adopting an opinion by the Bankruptcy Appellate Panel “in full,” the Ninth Circuit has limited its own precedents constricting a debtor’s ability to exempt a homestead.
In Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193 (9th Cir. 2012), and England v. Golden (In re Golden), 789 F.2d 698 (9th Cir. 1986), the Ninth Circuit declared that the debtors were not entitled to exemptions because the debtors sold their homesteads before or after filing. Both cases have now been limited to their particular facts.
Prior Ninth Circuit Authorities
In Golden, the earlier of the two cases, the chapter 7 debtor sold her home before bankruptcy and claimed an exemption to cover the proceeds. However, the debtor did not reinvest the proceeds in another home within six months, as required by California law. The Ninth Circuit ruled that the failure to reinvest under state law resulted in the loss of the homestead exemption, even though she would have been entitled to exempt the proceeds on the filing date.
In Jacobson, the Ninth Circuit expanded on Golden. The chapter 7 debtor sold her home after filing but did not reinvest the proceeds within six months as required by California law. Interpreting Golden, the Ninth Circuit reversed the BAP and held that the debtor lost the exemption, even though she would have been entitled to the exemption on the filing date.
The Case on Appeal
The case on appeal involved a chapter 7 debtor who co-owned a home in Washington State with her parents. She said that her interest was worth $90,000 and claimed a $125,000 homestead exemption.
She resided in the home on the filing date but married a short time later and moved in with her new husband. The chapter 7 trustee objected to the exemption, contending that she lacked the intent to reside in the home on the filing date and lost the exemption under Washington law when she moved out.
The BAP Opinion
The bankruptcy court overruled the objection, and the BAP affirmed in an opinion on March 23 by Bankruptcy Judge William J. Lafferty of Oakland, Calif. Others on the panel were Bankruptcy Judges Julia W. Brand and Scott H. Gan.
The trustee appealed the BAP’s opinion. The Ninth Circuit heard argument on February 5. In a per curiam but precedential opinion on March 5, the appeals court affirmed “for the reasons stated” by the BAP. The circuit court went further by adopting the BAP opinion “in full.”
Note: In nonprecedential opinions, appellate courts frequently affirm “for the reasons stated below.” However, taking the next step in a precedential opinion and adopting the lower court’s opinion is rare. In this instance, adopting the BAP opinion is significant because it has the effect of limiting Jacobson and Golden.
Washington Law
The debtor elected Washington exemptions, which grant a homestead exemption to property where the owner resides or intends to reside and that is “actually intended or used” as a principal residence. If the owner is not residing in the home, the owner may have an exemption by recording a declaration of exemption.
However, Washington law presumes a homestead to be abandoned if, in the absence of a declaration, the owner abandons the home continuously for six months.
Washington liberally construes the exemption in favor of debtors.
The BAP’s Reasoning
Judge Lafferty laid out what is commonly known as the snapshot rule. He cited Section 522(b)(3)(A) for the proposition that “exemptions are to be determined in accordance with the state law applicable on the date of filing,” citing Jacobson.
Although the debtor moved out shortly after filing, Judge Lafferty said:
[T]he plain language of Washington’s homestead statute reflects that Debtor was entitled to an automatic homestead exemption on the petition date, so long as she was occupying the Property as her principal residence, regardless of her future plans . . . . In other words, if the owner is occupying the homestead property as of the petition date, the inquiry ordinarily ends there; intent comes into play only if the owner does not occupy the property. [Emphasis added.]
The trustee countered by arguing that the exemption was conditioned on the debtor’s remaining in the property or filing a declaration of nonabandonment. Naturally, the trustee relied on Jacobson and Golden, where the debtors’ actions before or after filing resulted in loss of the exemption for failure to abide by state law.
Judge Lafferty conceded that the two cases “support the trustee’s position,” but he said in a footnote that “Jacobson appears to be an outlier in holding that post-petition events may impact a debtor’s right to an exemption. In any event, that case is both factually and legally distinguishable from the matter presented here.”
Rather than expand circuit precedent, Judge Lafferty instead focused on Washington law and “decline[d] to read the statute so broadly, particularly in light of the principle that Washington exemption statutes are to be interpreted liberally in favor of protecting family homes.”
Judge Lafferty went on to say that the cases cited by the trustee, including the two Ninth Circuit precedents, were “all distinguishable” on their facts. The debtor resided in the home on the petition date, and that “was sufficient to confer automatic protection of the homestead,” he said.
Moving out of the home was “simply irrelevant,” Judge Lafferty said. He saw “no policy that would be served by denying Debtor her exemption under these facts.” Indeed, he indicated that policy bent in favor of the debtor. He said that “a debtor’s right to a homestead exemption in a chapter 7 case should not be predicated on the happenstance of how long the case remains pending.”
Judge Lafferty (and therefore the Ninth Circuit) affirmed and remanded the case for the bankruptcy court to determine the amount of the exemption.
Observations
The opinion by Judge Lafferty is a ringing endorsement of the snapshot principle, where exemptions are determined as of the filing date and subsequent events do not matter, even if they would matter under state law.
Jacobson is indeed an “outlier,” as Judge Lafferty said. The Fifth Circuit has moved away from results like Jacobson.
In In re Frost, 744 F.3d 384 (5th Cir. 2014), a couple owned a home when they filed a chapter 13 petition. Later, they sold the home but did not reinvest the proceeds in another exempt homestead. Without saying in the opinion whether the case was in chapter 7 or 13, the Fifth Circuit held in Frost that the proceeds lost their exempt status, relying in part on In re Zibman, 268 F.3d 298 (5th Cir. 2001). In Zibman, the debtors sold their home before filing but did not reinvest within the time required by state law.
In Hawk v. Engelhart (In re Hawk), 871 F.3d 287 (5th Cir. Sept. 5, 2017), the Fifth Circuit backed away from Frost and Zibman by holding that property in an exempt individual retirement account on the filing date did not lose its exempt status if it was converted to nonexempt property after the filing of a chapter 7 petition.
Six months later, the Fifth Circuit expanded Hawk to cover homesteads, thus allowing a chapter 7 debtor to sell a home after filing but not lose the exemption, even if the proceeds were not reinvested in another house. Lowe v. DeBerry (In re DeBerry), 884 F.3d 526 (5th Cir. March 7, 2018).
In other words, DeBerry and Jacobson are irreconcilable. They reach opposite results on the same facts. Indeed, DeBerry is squarely on point for the appeal in the Ninth Circuit and leads to the same holding and conclusion as the opinion by Judge Lafferty.
To read ABI’s reports on Hawk and DeBerry, click here and here.
By adopting an opinion by the Bankruptcy Appellate Panel “in full,” the Ninth Circuit has limited its own precedents constricting a debtor’s ability to exempt a homestead.
In Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193 (9th Cir. 2012), and England v. Golden (In re Golden), 789 F.2d 698 (9th Cir. 1986), the Ninth Circuit declared that the debtors were not entitled to exemptions because the debtors sold their homesteads before or after filing. Both cases have now been limited to their particular facts.
Prior Ninth Circuit Authorities
In Golden, the earlier of the two cases, the chapter 7 debtor sold her home before bankruptcy and claimed an exemption to cover the proceeds. However, the debtor did not reinvest the proceeds in another home within six months, as required by California law. The Ninth Circuit ruled that the failure to reinvest under state law resulted in the loss of the homestead exemption, even though she would have been entitled to exempt the proceeds on the filing date.
In Jacobson, the Ninth Circuit expanded on Golden. The chapter 7 debtor sold her home after filing but did not reinvest the proceeds within six months as required by California law. Interpreting Golden, the Ninth Circuit reversed the BAP and held that the debtor lost the exemption, even though she would have been entitled to the exemption on the filing date.