through all aspects of the underlying bankruptcy case this case really is a saga of a correctly decided chapter thirteen case it was before this court back in two thousand and twelve it has reverberated through caused a great confusion across the four judicial districts in texas and it still be worked out to this day this confusion has resulted in delays due to a chapter seven debtor is receiving a fresh start it's also rendered the interpretation is resulting is rendered meaningless the when exempt property vest with debtors as set forth  owen versus owen from the united states supreme court as well as under section five twenty two c of the bankruptcy code in this case the facts are very simple they are agreed by all the parties and what happened in this case was involves a higher rate account which is exempt under section forty two point zero zero two one of the texas property code the crater's meeting in this case concluded on march twenty seventh twenty fourteen the trustee on april third issued a report if no distribution and at that point the case the clock which is counting down to the time in which the trustee or other parties in entries could object to the exemptions or to a discharge the deadline to object exemptions passed about a month later a adversary proceeding where a creditor objected to the discharge of all of the debts under section seven twenty seven was filed and that sort of proceeding through discovery and whatnot during discovery in that case it was discovered that the mr hauck had liquidated an i and use those proceeds to pay expenses and to live on and so forth that's why we're here today because the trustee you know you hired counsel filed a motion to turn over the property to the state that had become not exempt using the frost case which was decided by this court and then a subsequent case it was and it was decided by the bankruptcy exemption that gets lost due to the passage of time reverts to the estate and that was a chapter seven case and that was the first time that the frost case which is a chapter thirteen  to chapter seven the frost case that was decided didn't in the body of the pinion you did not mention the chapter  but but there was no references in said to the chapter began every subsequent opinion has come out post frost you know you know and it analyzes frostily in the  course of a chapter and you know as a chapter thirteen case analyzes chapter seven and when property exemptions occur and in subsequent events and those cases whether it's like the smith case or the original the very case in the western district they for years flat out rejected the application of frost to chapter seven then in march of this year the district court heard the debate appeal and said no wait a minute we're going to apply frost to two chapter seven cases and that case is now heading up to this court where the  brief will be filed probably in a couple of weeks so it's important to look at the difference between chapters thirteen japers seven why would that make a difference was a huge difference because in is property of the estate it says it in chapter in section thirteen zero six whereas in section five forty one which applies to all bankruptcy cases no matter the chapter proceeds of earnings from property or of the estate or proper the estate but everything is premised on being property of the estate or property that comes into the estate under owen verses of law and under section five twenty two when exemptions or allow that is after all objections the time to object is passed and nothing is happening like in this case exempt property vests with the debtor its exemption in the future so we're going to object even though we we have no basis for object and that's a problem with the way the frost has been interpreted and applied to chapter seven case where the debtor in that case decided to sell their home stead during the pendency of the case the trustee objected to the sale saying you know in saying that i want to extend the period to make my objections to exemptions in the event that after six months those proceeds are not reinvested into the new homestead and the court wrote this opinion and in  was matriculating up through the district court and the village judge went into you know great explanation about the difference between chapter thirteen and a chapter seven case thirteen is that section thirteen twenty seven provides for when property vests with the debtor by default property fast with the debtor at confirmation most of the that don't apply chap good frost to chapter seven cases have you also relied upon that was described in great detail by in the southern district in the mountain maior case it just where the district court reversed though if this was a homestead instead of an ira are you saying because it's a chapter seven didn't it could sell their home and keep of the proceeds because it's a benefit from a fresh start all they have to do is just wait for that deadline hit that deadline comes and we can sell our iras we can we can cash in our age we can sell our home and keep all the proceeds that that yes and in fact in the in the one other chapter thirteen where the debtor remains in possession of their property you know they all they have to do is apply their future income to you know you did process  that there is a lot of discussion of that chapter seven vs thirteen the opinion from this court did made no distinction it made no reference to any chapter whatsoever in the analysis was strictly on the taxes exemption statute which was analogous to the ira exemption statute as well as section five twenty two which in governs exemptions and all bankruptcy ran out three months later and zyban correctly held in it stood the test of time that that exemption expired therefore it you know plus the exemptions had never been allowed because it been was a in the objection to the exemption so the property was always property of the estate it had never vested with the debtor unlike this case here with talk where the presentation at this time  good morning honors my name's airpower i represent the appellee in this case who is a chapter seven trustee in the southern district texas missing a hard mr how it is correct that the facts are undisputed in this case but his recitation of the facts and is before the most important fact in this case and it explains the injustice that happened to creditors mr hauck did not receive a discharge in this case the way that this issue arose was that a creditor sued him under seven twenty seven to prevent him from seeing discharge in a deposition he said i have it came out that he had liquidated as i array and he said quote i have thirty thousand dollars of that money in cash sitting in a shoe box under my bed that's how this started and as that litigation continued  this appeal was running and eventually the discharge was denied that has been appealed that's now a final order so if you follow the appellant's logic the objection to exemption deadline runs at that point he's free to do with his house or his honor i'm sorry whatever he wants to do with it but when the discharge is denied that preposition creditor would have but for the bankruptcy had a right to recover the nonexempt fun is only automatic stay at that point that would prevent the debtor at that time from doing it so you've got a debt or you have a debtor who deceived no discharge and yet has used the bankruptcy code to convert a specific kind of exempt asset into what becomes an unlimited exemption in cash but the bankruptcy case was still open under the kurds it wasn't like the trustee coming back and for the case to be reopened it would still have not been discharged with an open case that's correct it was an ongoing and open case and so i think that that that entire picture of the facts shows what really happened here and why this is not a fair outcome unless the frost rule applies in chapter seven and so there are two issues before the court first does the frost apply in chapter seven cases second does frost which related to homestead also apply to the ira statute on the first issue as mr had mentioned there are two district courts that have considered that it is a matter first impression before this court but both of the district courts have considered it came out the same way and they said frost applied to chapter seven to tarmon in this case more recently the western district texas in the statutes five twenty two of the bankruptcy code and the texas property code exemption for homestead exemption both of those statutes apply the same whether you're in chapter seven chapter eleven or chapter thirteen there's nothing unique about those chapter thirteen case i believe that if the panel had intended for frost to be limited to applying only in chapter thirteen cases that would appear somewhere on the face of the frost opinion the fact that the panel did not even mention that it was a chapter thirteen case to me implies that the rule that was being announced applied across all chapters because they were discussing five twenty two the bankruptcy code and the homestead exemption s third issue is that the most common argument made for why should be limited to chapter thirteen cases is section thirteen zero six of the bankruptcy code that's the idea that in a chapter seven your post converted it's not after acquired property and it's certainly not income that property the homestead or the ira account existed on the petition date it was property of the estate as of the petition to what has happened and this is that the language that's used in frost and zip in is merely a conversion of the character of a piece of property a state from exempt in nature to not exempt and so that's why i don't think thirteen o six applies and the fourth point is that section five fifty four c of the bankruptcy code discusses when property three best in the debtor that's really the part of the code that puts an end to chapter seven cases notably if you look at that it says punk closing of the case property that was scheduled revestive the debtor this is a property of the estate under section five frost rule because the case had been closed and so if you look at judge boehm who was the author of the original pinion in this whole case wrote a case called and ray smith and that's typically what has been cited for the proposition that smith i'm sorry that that frost applies in chapter seven cases and in that he relies on five fifty four c because that's the nail in the coffin that's really the point at which the switch from the exemption existing during the case to the exemption existing after which the debtor has the right to liquidate its exempt assets and retain them as nonexempt cash would be the debt a point at which the trustee could no longer object to an exemption and our argument is deadline for which the trustee has to recover nonexempt property runs all the way until the end of the closing of the case discharge no it's actually further than that because there are some cases that have posited that the deadline should be the point of discharge but under seven twenty seven d n e of the bankruptcy code the trustee has the right to seek a revocation of a discharge until the case is closed so for example  even if you receive a discharge if your case hasn't been closed yet and it's something we discovered that you had an asset or you have committed some kind of fraud even though your discharge was allowed if the case is open the trustee can go ask the court discharge and so that's why i think if i think you foresee and the closing of the case should be the relevant date which is what it would be consistent with so if you have a situation were you cautioned ira or sell your home a week before the case is closed and then six six months into you have to reinvest it or something and a day before the six months are open or you never reinvest it do you still have those six months in which the case can be reopened are once the case is closed that's it you can go and sell your home and cash your ira i would say that at that point you are simply subject to state law and you are that that's really the fresh start moment right you have come out assuming you've gotten a discharge which didn't happen in this case it is correct that under state law you do have the right to sell your house and keep the equity in it as cash the only reason that you can do that is a practical matter though is that you no longer have creditors to come after those funds it's still not exempt it's just the fact that they aren't of creditors with claims against the nonexempt tax at that time so there is a point under state law if you have gone through bankruptcy and you do get your discharge where again we had knowledge that there is a point that you can take it and exempt asset and turn it into not exempt tax but it shouldn't be until you have gone through the entire  the second issue about whether or not a the frost opinion which discusses the homestead statute should also apply to our race i think is the easier of the two questions but also invokes the more important policy considerations if you look at the two sections of the texas property code they are drafted almost verbatim the in terms of the reinvestment requirement the language used to say that you have six months to reinvest homestead proceeds tracks exactly with the language that says you have sixty days to rollover your ira distribution and so i would argue that where two statutes have been drafted with parallel language they should be interpreted the same way that sold his ranch which was previously his homestead moved into his house filed a chapter seven case and claimed that the branch branch proceeds were exempt under the portion of the statute that  exempts homestead proceeds and also claimed that the new house he moved in was exempt so he was trying to double dip and what the court said is that the rollover portion of the statute is not there to protect proceeds as proceeds it's there to prevent homelessness the policy behind the texas homestead exemption is that when you get a fresh start the state of texas wants you to have a home and general roof over your head i don't want you to have an unlimited  and now other states the do not have the kind of generous homestead exemption that we have give you a cash exemption they say you can keep a certain amount of cash even under if you like the federal exemptions under the bankruptcy code you can exempt twelve hundred fifty dollars  texas doesn't allow you to exempt pass of the purpose of it is not to say that there is a you get the benefit of all the equity as tax your benefit so you get to keep your home and argue that the same logic applies to the ira texas is trying to give people a fresh start to have in good faith invested in their retirement for those funds to be used when they're in their retirement not as a substitute for cash and so when you are taking  ira and turning it into cash you are again converting what texas meant to be an exemption in a specific type of asset that it made a policy decision about and turning it into something else which is just it's all interrelated and so you can't divide up this idea and say well i have one exemption in real property and one exemption and personal property as cash and so that's whe what frost ended up ruling was that in that photograph is also clickable state law and then if you look at the line of cases from england to zoom in to frost collectively so in that photograph if you have a house the entire state law cause it doesn't matter whether it's a house or the proceeds because it's all part of one scheme of exemptions so if your house is in the photograph the real property exemption applies  also burdened with the obligation if you sell that house to reinvest the reinvest those proceeds that's part of what is your your exemption you don't get it free and clear of state law you get it subject to the burdens creditors think about that the law could say if you have a home setting you sell it those phones are permanently exempt that wouldn't benefit creditors and that's that's essentially what's happening here in the law doesn't say that the law puts some time limit on the fact that if you're going to not mentioned well could you explain to me why the bankruptcy judge and raymone to my your place that made a distinction between a seven and a thirteen and said this doesn't apply why was  analysis incorrect i do know that there's a couple reasons there he talks about he uses the phrase that once the exemption is allowed in the homestead quote  exempting the value of the homestead less secure at liens not proceeds from a post petition sale and i think that is a misunderstanding of the homestead exemption texas hasn't given you a homestead exemption in the equity in your house that's not the exemption the exemption is a house happens to be unlimited whereas most other states are not unlimited but saying that we if you start from the premise that you have an exemption in the value in your house i just fundamentally disagreed that if you sell your house or you liquidate an ira before you're of retirement age that you should be thinking about that as income think again that's an asset that existed on the petition date all you've done is convert the nature of that asset from real property into cash so again that's one of the several cases that relies on thirteen or six i believe and correct so really in order to reverse today the court would have to do one of two things it would simply have to reverse thrust on some level and i think that that doing anything other firm and is is putting frost at risk and i don't think that the court wants to do that and the second thing it could do is sort of graft on to frost the new limitations or restrictions that are being requested by the appellant they're just not there it's not in the opinion that that was limited to thirteen and if you look at the entirety  the to clear up a couple things there's the other a in the homestead exemption really there are some differences that we've been taught me at home so it's a lot because that's where the body of law is it provides the analysis here but it is just talk about it more in the more case homesteads or exemption and land itself and and there is this proceeds exemption for when that land is so resin ira has been described as a monetized account the exemption not only is in the account itself but the exemption also under you can extends to the right to receive payment from that account the statute refers to the person's right to assets held in order to receive payments whether vested or not  lists all the different kinds of account c e o there after so the nature of the exemption is slightly different now once the payments been received the question is you know does it lose its exemption after the debtor holds it for more than sixty days know again that's pretty clear cut in the concept of the temporal nature of this sixty day exemption or six months is not in dispute here  asset then that asset this unscheduled always perpetually remains property of the state because the trustee has never known about it and the trustee when they do later find out about it has the ability to go in and reopen the case and try to seek other relief whether it's a denial of the discharge or whatnot that same section that mr power talked about says if any property of the estate is not administered at the time of closing is abandon that to the debtor that you know that inherently would be any property that wouldn't that was not exempted by the debtor so and then of course administered property has been sold and there's proceeds distributed to the creditors and is required by the bankruptcy code in order for the smith case however to really work and in the in the progeny a smith to really work you have to go back to the part of the opinion in smith where it talks about a contingent asset in potential future proceeds that's a pretty contingent asset most people will sell their home stead at some point in their lives if they don't die first that's just you know the nature of life but when that homestead will be sold it is a no and this is the fatal flaw in smith and it's also been it was to talked about briefly where judge combs said the magic date is closing in the division like case the judge thought about well the real problem here is the fact that states could stay open forever without it without any resolution so we can see what happens with open in keeping an estate open you know delay is a fresh start and it doesn't matter whether a debtor engaged in bad conduct or a particular debtor was denied a discharge  the bankruptcy code is there to provide relief for all the parties in just the fact that a debtor doesn't ultimately receive a discharge you know does not mean that the debtor cannot enjoy the the benefit of the property exemptions afforded to them under you know the applicable state law in this court really does need to