FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In the Matter of: NIKALOUS G. 

GEBHART,

Debtor,

No. 07-16769

NIKALOUS G. GEBHART,  D.C. No.

Appellant, CV-07-0193 ROS

v.

MAUREEN GAUGHAN,

Trustee-Appellee. 

Appeal from the United States District Court

for the District of Arizona

Roslyn O. Silver, District Judge, Presiding

In the Matter of: STEVEN JAY 

CHAPPELL; JULIE LYNN CHAPPELL,

Debtors,

No. 07-35704

STEVEN JAY CHAPPELL; JULIE LYNN BAP No.

CHAPPELL,  WW 06-1435

Appellants, RKMo

v. OPINION

MICHAEL P. KLEIN, Chapter 7

Trustee,

Appellee. 

14063
Appeal from the Ninth Circuit

Bankruptcy Appellate Panel

Riblet, Klein, and Montali, Bankruptcy Judges, Presiding

Argued and Submitted December 12, 2008

San Francisco, California

Submission Vacated August 27, 2009

Resubmitted July 30, 2010

Filed September 14, 2010

Before: A. Wallace Tashima and Marsha S. Berzon, Circuit

Judges, and Robert J. Timlin,* District Judge.

Opinion by Judge Tashima

*The Honorable Robert J. Timlin, United States District Judge for the

Central District of California, sitting by designation. 

14064 In the Matter of GEBHART
COUNSEL

Harold E. Campbell, Mesa, Arizona, for appellant Gebhart.

Steven J. Brown, Phoenix, Arizona, for appellee Gaughan.

Marc S. Stern, Seattle, Washington, for appellants Chappells.

James W. Shafer, Seattle, Washington, for appellee Klein.

Tara Twomey, San Jose, California, for amicus curiae

National Association of Consumer Bankruptcy Attorneys.

14066 In the Matter of GEBHART
OPINION

TASHIMA, Circuit Judge:

These consolidated appeals present the question of how to

construe the homestead exemption in bankruptcy. In both

cases, the debtors filed for Chapter 7 bankruptcy at a time

when the value of the equity in their homes was less than the

amount they were eligible to claim under the state or federal

homestead exemption. There was no value in the homestead

properties that could be claimed by the bankruptcy estate, and

the debtors therefore anticipated that they would be able to

retain ownership of their homes, subject to the terms of their

mortgages, after the bankruptcy closed. The value of the

homes subsequently increased so that the debtors had equity

in excess of the homestead exemptions. Our question is

whether the bankruptcy Trustees may force a sale of the

homestead properties in order to recover the excess equity, or

whether instead the debtors should be allowed to retain any

postpetition increase in the fair market value of their homes.

We have jurisdiction over these appeals pursuant to 28

U.S.C. §§ 158(d)(1), 1291.

BACKGROUND

The Gebhart Bankruptcy

On August 8, 2003, Nikalous Gebhart (“Gebhart”), a resident of Arizona, filed for Chapter 7 bankruptcy protection. As

part of his bankruptcy petition, he claimed an exemption in

the amount of $89,703 for the house he owned in Phoenix.

According to the petition, the market value of the property at

the time of filing was $210,000, and it was encumbered by

mortgages in the amount of $120,297. The $89,703 figure

represents the difference between the value of the homestead

and the mortgages with which it was encumbered. Gebhart

claimed the exemption pursuant to ARIZ. REV. STAT. § 33-

In the Matter of GEBHART 14067
1101(A), which at the time of the bankruptcy filing provided

that an Arizona resident “may hold as a homestead exempt

from attachment, execution and forced sale, not exceeding

one hundred thousand dollars in value . . . [t]he person’s interest in real property in one compact body upon which exists a

dwelling house in which the person resides.”

1

 The Trustee did

not object to Gebhart’s claim of a homestead exemption in the

property.

Gebhart received his discharge under 11 U.S.C. § 727 on

December 12, 2003. He continued to reside in his house and

even refinanced his mortgage with a lender who apparently

believed Gebhart owned the property free and clear of any

claims by the bankruptcy estate. In fact, however, the bankruptcy case was not closed. On November 10, 2006, the

Trustee asked the bankruptcy court to approve the appointment of a real estate broker to sell the home for the benefit of

the estate.2 The Trustee believed that the value of the house

had increased substantially since the time of the bankruptcy

filing, and that if it were sold, the estate would recover a great

deal of money, even after paying off the mortgage and the

expenses of the sale and paying Gebhart the value he had

claimed for his homestead exemption. Gebhart responded by

moving that the court order the Trustee to abandon the homestead as valueless to the estate, or, in the alternative, that the

court determine that the estate no longer had any interest in

the homestead. Gebhart argued that the value of the homestead for the purposes of the bankruptcy case had been locked

1The statute has since been amended to increase the amount of the

exemption to $150,000. The exemption statute, as is common in these statutes, does not protect against foreclosure by holders of consensual liens

such as mortgages. Id. § 33-1104(D). Arizona has opted out of the federal

system of exemptions pursuant to 11 U.S.C. § 522(b)(2), and thus Gebhart

was eligible to use only the state law system of exemptions. 

2Gebhart states in his brief that the Trustee demanded in October 2006,

prior to applying for the appointment of a real estate broker, that Gebhart

pay the Trustee $115,000 for increased equity in the house. There is no

indication in the record of any such demand. 

14068 In the Matter of GEBHART
in at the time of the bankruptcy filing, and that because the

entire value at that time had been covered by mortgages and

the homestead exemption, there was no value left for the

estate to recover.

The bankruptcy court ruled in favor of the Trustee, ordering

the appointment of a real estate broker and denying the

motion for abandonment. Gebhart appealed to the district

court, which affirmed the bankruptcy court’s ruling. This

appeal followed.

The Chappell Bankruptcy

The Chappells’ story is similar to that of Gebhart. Steven

and Julie Chappell filed for Chapter 7 bankruptcy on June 30,

2004. They owned a home in Camano Island, WA, in which

their equity at the time of bankruptcy—$21,511—was less

than the $36,900 they were allowed to claim under the federal

homestead exemption in bankruptcy, 11 U.S.C. § 522(d)(1).3

The Chappells received their discharge under 11 U.S.C.

§ 727 on October 21, 2004. On July 7, 2006, two years after

the bankruptcy petition was filed, the holder of the Chappells’

mortgage moved for relief from the stay in order to foreclose

on the homestead because the Chappells had fallen into

default. The Trustee responded that he believed the fair market value of the homestead had increased substantially since

the bankruptcy filing, and asked permission to attempt to sell

the property and keep the excess recovered for the benefit of

the estate. The bankruptcy court ruled that the homestead had

passed entirely out of the estate when the Chappells had

claimed all of their equity in it as exempt and the Trustee

failed to object. The Trustee appealed and the bankruptcy

3At the time the case was filed, the federal homestead exemption was

$18,450. Because the Chappells filed a joint bankruptcy case, they were

allowed to double the value of the exemption pursuant to 11 U.S.C.

§ 522(m). 

In the Matter of GEBHART 14069
appellate panel (the “BAP”) reversed the bankruptcy court’s

decision, holding that the postpetition appreciation in the

homestead belonged to the estate. Klein v. Chappell (In re

Chappell), 373 B.R. 73, 83 (9th Cir. BAP 2007). This appeal

followed.

STANDARD OF REVIEW

When we review a district court’s affirmance of a bankruptcy court’s decision, we apply the same standard as the

district court: the bankruptcy court’s findings of fact are

reviewed for clear error, and conclusions of law are reviewed

de novo. Abele v. Modern Fin. Plans Servs., Inc. (In re

Cohen), 300 F.3d 1097, 1101 (9th Cir. 2002). The same is

true of an appeal from the BAP’s reversal of a bankruptcy

court’s decision. Sigma Micro Corp. v. Healthcentral.com (In

re Healthcentral.com), 504 F.3d 775, 783 (9th Cir. 2007).

ANALYSIS

[1] The primary issue we must decide in these consolidated

appeals is whether the Trustee’s failure to object to the homestead exemption claim within the period allowed by statute

resulted in the homestead property being withdrawn from the

bankruptcy estate at that point. The Supreme Court held in

Taylor v. Freeland & Kronz, 503 U.S. 638, 644 (1992), that,

unless the trustee objects to a claimed exemption within the

30-day period allowed under Federal Rule of Bankruptcy Procedure 4003(b), the property is exempted from the bankruptcy

estate even if the debtor had no good faith basis for the claim

of exemption. The effect of an exemption is that the debtor’s

interest in the property is “withdrawn from the estate (and

hence from the creditors) for the benefit of the debtor.” Owen

v. Owen, 500 U.S. 305, 308 (1991); accord Smith v. Kennedy

(In re Smith), 235 F.3d 472, 478 (9th Cir. 2000) (“It is widely

accepted that property deemed exempt from a debtor’s bankruptcy estate revests in the debtor.”). As the Second Circuit

has stated, “[q]uite simply, property that has been exempted

14070 In the Matter of GEBHART
belongs to the debtor.” Bell v. Bell (In re Bell), 225 F.3d 203,

216 (2d Cir. 2000). This principle is consistent with the text

of the Bankruptcy Code, which defines exempt property as

property that, unlike all the debtor’s other property, does not

belong to the bankruptcy estate. See 11 U.S.C. § 522(b)(1);

see also S. REP. No. 95-989, at 52 (1978), as reprinted in

1978 U.S.C.C.A.N. 5787, 5838 (recognizing that exempt

property “ceases to be property of the estate”).

[2] The homestead exemptions available to the debtors in

both of these cases, however, do not permit the exemption of

entire properties, but rather specific dollar amounts. Under 11

U.S.C. § 522(d)(1), the Chappells were entitled to exempt

“[t]he debtor’s aggregate interest, not to exceed [$36,900] in

value, in real property.” Similarly, the Arizona statute under

which Gebhart claimed his exemption entitles a debtor to a

homestead exemption “not exceeding one hundred thousand

dollars in value.”ARIZ. REV. STAT. § 33-1101. The Supreme

Court recently clarified in Schwab v. Reilly (In re Reilly), 130

S. Ct. 2652 (2010), that exemptions claimed under statutes

like these are limited to the dollar value claimed in the

exemption. Even when a debtor claims an exemption in an

amount that is equal to the full value of the property as stated

in the petition and the trustee fails to object, the asset itself

remains in the estate, at least if its value at the time of filing

is in fact higher than the exemption amount.4Id. at 2661-62,

2666. Instead, what is removed from the estate is an “interest”

4We note that Reilly did not address instances in which the full value

of property at the time of filing is in fact equal to or less than the monetary

limit provided for by the relevant bankruptcy exemption. Although the

Court expressed skepticism about the issue, it left open whether such a

claim would entitle a debtor to the property itself as opposed to a payment

equal to the property’s full value. Reilly, 130 S. Ct. at 2668 n.21. As in

Reilly, the facts of these cases do not implicate this scenario, because the

debtors here claimed as exempt only their equity interest in their properties (the difference between the value of the homesteads and the mortgages with which they were encumbered), not the full fair market value

of their properties. 

In the Matter of GEBHART 14071
in the property equal to the value of the exemption claimed

at filing. Id. at 2660.5 The implications for the cases at issue

here are clear: the fact that the value of the claimed exemption

plus the amount of the encumbrances on the debtor’s residence was, in each case, equal to the market value of the residence at the time of filing the petition did not remove the

entire asset from the estate.

The Supreme Court’s decision in Reilly was based on a

somewhat different situation than is present here. In Reilly,

the debtor underestimated the value of the exempt property at

the time of filing. Id. at 2657-58. In both of the current cases,

by contrast, the debtors accurately valued the equity interests

in their homestead properties at the time of bankruptcy filing,

but the fair market values of the properties increased subsequent to filing. This distinction, however, does not alter the

analysis. Under Reilly, an exemption claimed under a dollarvalue exemption statute is limited to the value claimed at filing. At least when the total fair market value of the property

is in fact greater than the exemption limit at the time of filing,

see note 4, supra, any additional value in the property remains

the property of the estate, regardless of whether the extra

value was present at the time of filing or whether the property

increased in value after filing. 

[3] The debtors argue that this conclusion is inconsistent

5Gebhart relies on Evans v. Young, 661 P.2d 1148 (Ariz. Ct. App.

1983), to argue that the Arizona homestead exemption statute exempts an

entire property and not merely a dollar amount equal to the maximum

amount of the exemption, and that because Arizona is an opt-out state the

Supreme Court’s contrary interpretation of the federal exemption scheme

is irrelevant. Evans, however, was decided based on an earlier version of

the Arizona homestead statute, which exempted “real property”, Evans,

661 P.2d at 1149 n.1, whereas the current version of the statute exempts

an “interest in real property,”ARIZ. REV. STAT. § 33-1101(A) (emphasis

added). By its plain language, the Arizona homestead exemption thus

appears to track the federal exemption in applying only to an interest up

to a given monetary amount. 

14072 In the Matter of GEBHART
with the Bankruptcy Code’s scheme for valuing exempt property. Under 11 U.S.C. § 522(a)(2), “ ‘value’ [of property

sought to be exempt] means fair market value as of the date

of the filing of the petition or, with respect to property that

becomes property of the estate after such date, as of the date

such property becomes property of the estate.” The debtors

argue that this provision effectively freezes the value of property claimed as exempt as of the date of bankruptcy filing.

This argument does not accord, however, with past holdings

of this court, which establish that what is frozen as of the date

of filing the petition is the value of the debtor’s exemption,

not the fair market value of the property claimed as exempt.

See Hyman v. Plotkin (In re Hyman), 967 F. 2d 1316, 1320

n.9 (9th Cir. 1992). A number of our cases have held that,

under the California exemption scheme, the estate is entitled

to postpetition appreciation in the value of property a portion

of which is otherwise exempt. See Alsberg v. Robertson (In re

Alsberg), 68 F.3d 312, 314-15 (9th Cir. 1995); Hyman, 967

F.2d at 1321; Schwaber v. Reed (In re Reed), 940 F.2d 1317,

1323 (9th Cir. 1991); see also Viet Vu v. Kendall (In re Viet

Vu), 245 B.R. 644, 647-48 (9th Cir. BAP 2000).

The fact that the cases cited above dealt with exemptions

claimed under California’s statutory exemption scheme does

not limit their applicability to the cases at bench, where

exemptions were claimed under Arizona and federal statutes.

Reilly has reaffirmed certain of the underlying principles in

these cases and clarified that, with respect to how exempt

property is defined, their reasoning is applicable not just to

California’s exemption scheme, but to all statutes that limit

the value of an exemption to an “interest” in property capped

at a dollar value. Morever, this court’s past position on postpetition appreciation is based not solely on the California statute defining exempt property but also on 11 U.S.C.

§ 541(a)(6) (including as property of the estate “[p]roceeds,

product, offspring, rents, or profits of or from property of the

estate . . .”), which is equally applicable to the cases at issue

In the Matter of GEBHART 14073
here. See In re Reed, 940 F.2d at 1323; In re Viet Vu, 245

B.R. at 649.

[4] The debtors argue that the result we reach today will

lead to uncertainty about the status of exempt property and

abuses by trustees. The facts of the Gebhart bankruptcy suggest that some of these concerns are legitimate. Gebhart

remained in his home for five years after filing for bankruptcy, paying his mortgage and believing that his bankruptcy

was finished when he received his discharge. Gebhart may

have been mistaken in this belief, but his misapprehension

was shared by his mortgage lender, which refinanced his

home, apparently unaware of any claims on the property by

the Trustee. A Chapter 7 debtor will not be certain about the

status of a homestead property until the case is closed (something that may not happen for several years after bankruptcy

filing) or the trustee abandons the property. 

Gebhart argues that, even if the homestead is the property

of the bankruptcy estate, the Trustee in his case intentionally

left the case open longer than necessary and should be estopped from proceeding with the sale of the property. We do not

decide whether estoppel might be available as a remedy in a

bankruptcy proceeding, see Cannon v. Hawaii Corp. (In re

Hawaii Corp.), 796 F.2d 1139, 1144 n.3 (9th Cir. 1986),

because, even if it were, Gebhart has not met the requirement

for estoppel to apply. The following four elements are

required in order for estoppel to apply:

(1) The party to be estopped must know the facts; (2)

he must intend that his conduct shall be acted on or

must so act that the party asserting the estoppel has

a right to believe it is so intended; (3) the latter must

be ignorant of the true facts; and (4) he must rely on

the former’s conduct to his injury.

Bob’s Big Boy Family Rests. v. NLRB, 625 F.2d 850, 854 (9th

Cir. 1980). Gebhart has made no showing that the Trustee

14074 In the Matter of GEBHART
intended for Gebhart to act as if he would be able to retain the

homestead property permanently. Nor can Gebhart show, as

required by the second part of the second element, that he had

a right to believe that the Trustee, by her inaction, intended

Gebhart to believe that she had released all rights to the

homestead. The estate does not relinquish property until the

bankruptcy case is closed or the estate abandons the property

under 11 U.S.C. § 554. Moreover, Gebhart was no more ignorant of the true facts than was the Trustee.

Furthermore, abandonment of an estate asset is not a remedy for a trustee’s misconduct. A trustee has a duty under 11

U.S.C. § 704(a)(1) to administer the case quickly and expeditiously, and we reach no decision as to whether the Trustee

failed to live up to this duty by leaving the case open for eighteen months without activity. If there were any misconduct by

the Trustee, the duty to police it falls on the U.S. Trustee in

Gebhart’s district, who may suspend or expel a trustee for

failure to perform her duties or comply with the Bankruptcy

Code. See 28 C.F.R. § 58.6(a)(2) - (3). To require the Trustee

to abandon Gebhart’s homestead would punish Gebhart’s

creditors for the Trustee’s misdeeds.6

CONCLUSION

For the reasons set forth above, the judgment of the district

court in Gebhart’s case, No. 07-16769, and of the BAP in the

Chappells’ case, No. 07-35704, are AFFIRMED.

6A debtor also has an alternative remedy of petitioning under 11 U.S.C.

§ 554(b) for the bankruptcy court to “order the trustee to abandon any

property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.” 

In the Matter of GEBHART 14075