Source: https://dianedrain.com/bankruptcy-law/bankruptcy-case-law/case-law-exempt-property/
Timestamp: 2019-07-16 21:05:59
Document Index: 208165683

Matched Legal Cases: ['§ 522', '§522', '§ 407', '§ 407', '§ 407', '§522', '§ 42', '§ 541', '§ 522', '§ 55', '§ 41', '§ 522', '§ 522', '§ 522', '§ 522', '§ 522', '§ 522', '§ 330', '§ 522', '§ 33', '§ 33', '§ 407', 'art 212', '§ 47', '§522', '§522', '§522', '§522', '§522', '§408', '§408', '§72', '§522', '§522', '§522', '§ 407', '§ 20', '§ 33', '§ 33', '§ 1126']

Exempt Property | Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney
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1 EXEMPT PROPERTY
1.1 WHAT ARE EXEMPTIONS OR EXEMPT PROPERTY?
1.2 A debtor’s exemption rights are fixed as of the petition date.
1.2.1 The filing date of a bankruptcy petition determines the law governing exemptions and freezes the value of the exemptions that the debtor may claim
1.2.2 1215 DAY LIMIT ON ACQUIRING HOMESTEAD:
1.2.3 Secured Debt and Settlement Between Trustee and Secured Creditor
1.2.4 Homestead Post-Petition Sale Proceeds Retain Exempt Status in Chapter 7
1.2.5 The Snapshot Rule Prevails: Date of Filing Petition Fixes Exemptions
1.2.6 Secured Debt and Settlement Between Trustee and Secured Creditor
1.2.6.1 Why aren’t wages protected once deposited into a bank account?
1.2.7 When is the funds still property of the debtor when the check is written or when the check is honored?
1.2.8 Social Security benefits commingled in an account with nonexempt funds retain their exempt status
1.2.9 SOCIAL SECURITY FUNDS:
1.2.10 INTEREST ON GOVERNMENT BENEFITS:
1.2.11 Worker’s Compensation:
1.2.12 Wages:
1.2.13 State Retirement Funds:
1.2.14 Arizona insurance proceeds for exempt property:
1.2.15 HSA ACCOUNT IS EXEMPT
1.2.16 Debtor reopens chapter 7 19 years after discharge to claim homestead exemption.
WHAT ARE EXEMPTIONS OR EXEMPT PROPERTY?
WARNING: Bankruptcy law dictates what exemptions a consumer may use when filing for bankruptcy protection. Make sure to determine where the debtor lived in the two and 1/2 years before the bankruptcy is filed.
STATE vs FEDERAL vs RESIDENCY
In re Cline, BAP No. AX-14-1503-PaJuKi, 2015 WL 3988992 (B.A.P. 9th Cir. Jun. 30, 2015) The B.A.P., consisting of Judges Kirscher, Pappas, and Jury, affirmed the Bankruptcy Court’s ruling that the Missouri exemption statutes applied to Debtors despite the fact that Debtors recently became Arizona residents. Missouri law opts out of the federal exemption scheme and applies to all individuals domiciled in Missouri. Debtors were still considered domiciled in Missouri despite the recent change of residence to Arizona and, thus, were ineligible to claim federal exemptions under 11 U.S.C. § 522(d).
As noted in in In re Williams, 369 B.R. 470 (Bankr. W.D. Ark. 2007), many states’ opt-out provisions apply only to residents of that state and therefore non-resident debtors may use §522(d) exemptions. A state that wants its opt-out provision to apply to non-resident debtors uses language such as the Iowa statute quoted in Williams: “[a] debtor to whom the law of this state applies on the date of filing of a petition in bankruptcy is not entitled to elect to exempt from property of the bankruptcy estate the property that is specified in 11 USC sec. 522(d) (1979).”
Residency is determined by where debtor actually resided for the past two years (and if necessary period before). See In re Rody, 2012 WL 385474 (Bkrtcy.D.Ariz.,2012). Debtors lived in Arizona for purposes of venue, the majority of the 180 days prior to filing, but were not residents of Arizona on the date of filing. Judge Marlar determined that the Arizona exemptions did not apply to non-residence and that the Debtors were entitled to the Federal Exemptions. In the Rody case, the Debtors just moved to Massachusetts which was clearly where they intended to reside, but they had not lived there long enough to claim as their residence for exemption purposes.
Arizona Revised Statutes Section 33-1133 “…in accordance with 11 U.S.C. 522 (b), residents of this state are not entitled to the federal exemptions provided in 11 U.S.C. 522 (d)..” This clearly limits the opt-out to RESIDENTS of Arizona. Federal exemptions provide exemption status to some valuable things that are not provided for in Arizona: Wildcard, private disability proceeds, $23,000 for personal injury lawsuits, etc. As to personal injury, pecuniary loss, including pain and suffering, is not exempted under the PI exemption, only compensation for personal bodily injury such as loss of consortium, permanent bodily damage.
Sheehan v. Ash, 16-109 (N.D. W.Va. June 27, 2017). The trustee argued that applying Louisiana exemptions to property in West Virginia was a constitutionally prohibited extraterritorial application of state law by virtue of the Fourteenth Amendment. Judge Keeley rejected the argument, finding that one state cannot impose its laws on another state, but Congress is at liberty to select one state’s laws and make them applicable extraterritorially, as occurs in Section 522(b)(3)(A).
Judge Keeley followed the majority approach, which she called the “state-specific interpretation,” that allows using the former state’s laws in another state if the former state’s law permits. In other words, if the former state’s laws do not prohibit applying exemptions to people or property in another state, then the court “should apply the [former] state’s exemptions to the debtor’s property, wherever located.”
The state-specific approach has the “plainest meaning” and “the most liberal interpretation that feasibly may be applied to Section 522(b)(3)(A),” a statute, Judge Keeley said, that is “a choice of law provision.”
The debtors were entitled to exempt property in West Virginia because Judge Keeley concluded that Louisiana does not prohibit application of its exemptions to people or property out of state.
Carpenter v. Ries (In re Carpenter), 614 F.3d 930 (8th Cir., 2010) or In re Buren, 725 F.2d at 1086 (noting “social security payments only become part of a debtor’s estate if he chooses to include them”). We conclude § 407 must be read as an exclusion provision, which automatically and completely excludes social security proceeds from the bankruptcy estate, and not as an exemption provision which must be claimed by the debtor. See [614 F.3d 937] 42 U.S.C. § 407; 4 Alan N. Resnick & Henry J. Sommer, Collier on Bankruptcy ¶ 522.09[10][a] n.76 (16th ed. 2010) (“Congress amended 42 U.S.C. § 407 to clarify that the inalienability of Social Security benefits was not repealed by the Bankruptcy Code, so that such benefits should not even become part of the bankruptcy estate.”).
In re Hildestad, Case No. 0:09-bk-17733-EWH (unpublished opinion: J. Hollowell, Az BK Court). Debtors deposited lump sum payment of Social Security funds into account, then withdrew it (probably had funds at time chapter 7 is filed. Trustee wanted the funds. Court found: Specifically, social security benefits commingled in an account with nonexempt funds retain their exempt status. citing In re Moore, 21,4 B.R. 628 (Bankr. D. Kan. 1997); NCNB Financial Services, Inc. v. Shumate, 829 F. Supp. 178 (W.D. Va. 1993), aff’d, 45 F.3d 427 (4th Cir. 1994); Hatfield v. Christopher, 841 S.W.2d 761 (Mo. Ct. App. W.D.1992); see also In re Frazier, 11,6 B.R. 675 (Bankr. W.D. Wis. 1990) (social security benefits commingled with other exempt funds remain exempt).
WHICH STATE EXEMPTIONS APPLY?
If the debtor hasn’t lived in Arizona for the entire 2 years per-petition period, then the rule is to go back 2 years from the expected date of filing. Determine which state the debtor lived in the majority of the 180 days before that 2 year period. If it is also Arizona, then use Arizona exemptions. For example a case to be filed on August 30, 2013. Go back to August 30, 2011. Then if debtor lived in Arizona the majority of the period from Feb. 28, 2011 – August 30, 2011 (or count the exact days because of different days in each of those months), then can still use Arizona exemptions.
Federal Exemptions in Bankruptcy	(133 downloads)
CALIFORNIA EXEMPTIONS - IS SECTION 703 UNCONSTITUTIONAL?
In Re Regevig, 389 B.R. 736 (Bankr. D. Ariz. 2008) and Terry Dake represented Jill Ford. A Judge Haines’ decision holding that the bankruptcy only exemptions in CA Section 703 (the set with the wildcard) violates the Supremacy Clause and is not available for folks filing bankruptcy in Arizona.
There was no circuit (or BAP) level holding in the 9th Cir overruling or explicitly agreeing with Haines’ holding
EXEMPTION STATUTES TO BE LIBERALLY CONSTRUED IN FAVOR OF DEBTOR
Under both Federal and Arizona law, exemption statutes are to be liberally construed in favor of a Debtor who claims an exemption. In re Thiem, 443 B.R. 832, 837-38 (Bankr. D. Ariz. 2011) (citing to In re Arrol, 170 F.3d 934, 937 (9th Cir. 1999); Gardenhire v. Glasser, 226 P. 911, 912 (Ariz. 1924); In re Herrscher, 121 B.R. 29, 31 (Bankr. D. Ariz. 1989)). And, in particular, the homestead laws should be interpreted liberally to advance the objectives of the statute, the fundamental purpose of which is to protect the family against the forced sale of the home property from certain creditors. Matcha v. Winn, 131 Ariz. 115, 638 P.2d 1361 (Ariz. App.1981).
“Domicile” is the requirement under section 522(b)(3) regarding exemptions. It is a well established principal that every person has in law a domicile, or put another way, “everybody belongs somewhere.” Walters v. Weed, 45 Cal. 3d 1, 752 P.2d 443, 246 Cal. Rptr.5 (California Supreme Court 1988). It is a fundamental principal that a domicile is not lost until a new one is acquired. Id. A new domicile is not established by intent to acquire a new domicile if the person has not yet moved to a place where he intends to remain. Id. “For purposes of §522(b), ‘domicile’ means actual residence coupled with a present intention to stay there.” In re Urban, 375 B.R. 882 (9th Cir. BAP 2007) “For adults, domicile is established by physical presence in a place in connection with a certain state of mind concerning one’s intent to remain there.” Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 109 S.Ct. 1597, 104 L.Ed.2d 29 (1989).
EXEMPTIONS ESTABLISHED ON PETITION DATE
In re Hawk, 5th Circuit, 9/5/17 – “The Snapshot Rule”White v. Stump, a debtor filed for bankruptcy, and his wife later sought a homestead exemption for the land where the debtor and his family resided. 266 U.S. 310, 310–11 (1924). The Supreme Court explained that “the state laws existing when the petition is filed [are] the measure of the right to exemptions.” Id. at 312. Moreover, the date of filing is the point at which “the status and rights of the bankrupt, the creditors and the trustee . . . are fixed.” Id. at 313.
Likewise, if the Hawks held amounts recently distributed from their retirement account when they filed for bankruptcy, those funds would be subject to the applicable sixty-day limitation on the exemption. See TEX. PROP. CODE § 42.0021(c). The Trustee could have objected to the exemption if the liquidated funds were not rolled over into another retirement account within sixty days.1 But the Trustee did not timely object to the claimed exemption, and under Taylor, the Trustee could not contest the exemption’s validity after the time for objecting passed. 503 U.S. at 643–44. The property interest was “withdrawn from the estate” when the exemptions were allowed, Owen, 500 U.S. at 308, and there was no provision under which the Hawks’ subsequently acquired interests in amounts distributed from the IRA could become part of the estate. Accordingly, we hold that the bankruptcy court erred in ordering the Hawks to turn over the liquidated funds to the Trustee.
A debtor’s exemption rights are fixed as of the petition date.
In re Kim, 257 B.R. 680, 687 (9th Cir. BAP 2000); see also Owen v. Owen, 500 U.S. 305, 314 n. 6 (1991) (the proper date for determining whether an exemption exists is the date of fling of the bankruptcy petition). Additionally, assets exempt on the petition date retain their exempt status regardless of post-petition use or change in character of the funds. Kim,257 B.R. at 689; see also In re Herman,120 B.R. 127, 130 (9th Cir. BAP 1990) (“Absent conversion from one chapter to another, the nature and extent of a debtor’s exemption rights are determined as of the date of the petition . . . Thus, any post-petition disposition of the property or post-petition change in the identity of the property into proceeds has no impact upon the exemption analysis.”); In re Reed,184 B.R. 733, 737 (Bankr. W.D. Tex. 1995) (“The majority of courts . . . hold that a postpetition change in the character of property properly claimed as exempt will not change the status of that property, relying on the principle that once property is exempt, it is exempt forever and nothing occurring postpetition can change that fact.”).
The filing date of a bankruptcy petition determines the law governing exemptions and freezes the value of the exemptions that the debtor may claim
NOTE: Debtor gave up her discharge because of bad acts so could this have affected the court’s decision??
DEBTOR CLAIMING EXEMPTIONS FOR NON-FILING SPOUSE IN COMMUNITY PROPERTY
In re Perez, 302 B.R. 661, 663 (J. Haines, Bankr. D. Ariz. 2003) holding that a debtor may claim that property is exempt from community debts under Arizona law by asserting not only his own, but also his spouse’s exemptions because such spouse acts for the benefit of the community and thus Arizona law allows one spouse to claim the other’s exemptions on her behalf. Arizona law imposes a presumption that debts incurred by one spouse are for the benefit of the community. Johnson v. Johnson, 131 Ariz. 38, 44, 638 P.2d 705, 711 (1981)
In Morris the Trustee’s argument that Husband is receiving an improper windfall because he is effectively exempting both the Honda and the Jeep fails. Because the Jeep is not community property, it does not become property of Debtor’s estate under 11 U.S.C. § 541(a)(2)(A)[2], but that does not mean that Husband may claim the Jeep as exempt in or out of bankruptcy. Debtor’s claim of exemption on behalf of Husband is binding on him. In re Homan, 112 B.R. 356 (9th Cir. BAP 1989). As a result, Husband cannot claim an exemption in the Jeep because his exemption has already been used. While it is possible that Husband might attempt to claim the Jeep as exempt in some future bankruptcy, the Trustee’s objection cannot be sustained based on speculation that something improper may occur in the future. See Perez, 302 B.R. at 664-65 (“The Court is confident that Bankruptcy Rule 2011 will preclude attorneys from seeking to claim a double set of exemptions where it might be possible to do so, and in any event that alert trustees can adequately respond to such abuses should they occur.”)
see also In re: Rizalina A. Morris, Chapter 7 Debtor. United States Bankruptcy Court, D. Arizona March 20, 2013 (Hollowell).
But, see: In re Fox, NV-11-1009-JoJuH, (9th Cir. BAP – cert to Nevada Supreme Ct) July 2, 2013. A debtor cannot assert exemptions on behalf of a non-filing spouse.
AMENDING SCHEDULE C (and OTHER SCHEDULES)
Aldana v. Stadmueller, 2018 Bankr. LEXIS 3676(9th Cir. BAP 11/20/2018) Debtor failed to disclose his interest in a 2012 Chevrolet Malibu that he had purchased from a used car dealer two months prior to filing his chapter 7. When the trustee learned that the dealer’s security interest in the vehicle was perfected post-petition, he filed an adversary proceeding against the dealer to avoid the post-petition transfer. Upon achieving judgment, the trustee then moved against the debtor for turnover of the vehicle. At this point, debtor realizing that he neglected to claim the car exempt, amended his Schedules to do so. The trustee then moved to disallow the exemption asserted in the vehicle, and in addition to have sanctions imposed against debtor’s attorney for frivolously asserting the debtor’s right to claim the exemption. Debtor’s counsel argued that Law v. Siegel, 571 U.S. 415(2014) permitted him to claim an exemption at any time. The bankruptcy court ruled for the trustee and imposed sanctions against the attorney; and in a published decision, the BAP not only affirmed, but stated that further sanctions were warranted against debtor’s counsel for the filing of a frivolous appeal.
The BAP stated that it was hornbook law that, pursuant to 522(g), an exemption cannot be claimed as to property, either voluntarily transferred by the debtor or concealed by him, that is recovered by the trustee. Here, perfection of the security interest amounted to a voluntary transfer of property under 101(54)(D), and recovery of the transfer was accomplished by Section 550. Law stands for the general proposition that a court cannot deny an exemption that is otherwise allowed by statute. Here, the relevant statute was 522(g) that disallowed the exemption.
In re Dawson, 16-04923 (Bankr. W.D. Mich. Dec. 7, 2018) The trustee uncovered the potential malpractice claim against the debtor’s counsel at the Section 341 meeting (counsel failed to file bankruptcy before the expiration of the 90 days after garnishment). Subsequently, the trustee filed a negligence suit against the debtor’s counsel. The debtor then amended his schedules to claim an exemption covering the negligence suit.
Trustee . . . is building a case against Ms. Chadwick for legal malpractice due to her alleged failure to file the Debtors’ petition in time to preserve a possible preference recovery (and exemption rights) under 11 U.S.C. §§ 522(g) and 547. The Trustee’s theory, evidently, is that if counsel had filed the Debtors’ bankruptcy petition two days earlier, the Debtors could have exempted approximately $6,047.00 on account of a preference recovery that might have been wrested from their judgment creditor, Portage Federal Credit Union.
The trustee objected to the exemption claim but lost when Judge Dales handed down his decision on December 7, 2018. “Notwithstanding sections 550 and 551 of this title,” Section 522(g) provides that “the debtor may exempt . . . property that a trustee recovers under Section . . . 550 . . . , to the extent that the debtor could have exempted such property . . . if such property had not been transferred, if — (1)(a) such transfer was not a voluntary transfer . . . by the debtor; and (B) the debtor did not conceal such property . . . .”
Gray v. Warfield (In re Gray) BAP No. AZ-13-1502-JuKiD (9th Cir, 10 Dec 2014) Chapter 7 debtors1 Ian and Cynthia Gray appeal from the bankruptcy court’s order sustaining the chapter 7 trustee’s objection to an amended exemption on the grounds of bad faith. Because the Supreme Court in Law v. Siegel, 134 S. Ct. 1188 (2014), determined that bankruptcy courts have no discretion either to disallow amended exemptions or to deny leave to amend exemptions based on equitable grounds not specified in the Bankruptcy Code, we VACATE and REMAND.
Debtor can amend his Schedules at any time UNLESS another party has suffered prejudice in relying upon the previously filed Schedules. See, e.g., In re Howe, 2009 Bankr. LEXIS 2831 (Bkrtcy. N.D.N.Y. 2009): Debtors may, under F.R.B.P. 1009(a), amend their bankruptcy schedules, including Schedule C, at anytime before their case is closed. Case law supports a debtor’s right to freely amend their exemptions. See Cinelli, 2006 Bankr. LEXIS 3432, 2006 WL 3545444, at *3; In re Fournier, 169 B.R. 282, 283 (Bankr. D. Conn. 1994). Nevertheless, contrary [*10] to the Debtors’ assertion, the right to amend is not equivalent to the right to the exemption. In re Blaise, 116 B.R. 398, 399 (Bankr. D. Vt. 1990). While a debtor may have the right to freely amend Schedule C, this does not equate to a substantive right to the exemption.
LISTING VALUE OF EXEMPTIONS
Schwab v. Reilly, No. 08–538 U.S. Supreme Court, June 17, 2010 In a Chapter 7 bankruptcy trustee’s appeal from the Third Circuit’s affirmance of the bankruptcy court’s order denying the trustee permission to auction certain equipment so that the debtor could receive the money she claimed exempt and the estate could distribute the remaining value to creditors, the order is reversed where, because debtor gave “the value of [her] claimed exemption[s]” on Schedule C dollar amounts within the range the Code allows for what it defines as the “property claimed as exempt,” the trustee was not required to object to the exemptions in order to preserve the estate’s right to retain any value in the equipment beyond the value of the exempt interest. Read more… Therefore, debtors wishing “to exempt property in its entirety. ..[should] write ‘full fair market value (FMV)’ or ‘100% of FMV’ in Schedule C’s value-of-claimed-exemption column.”
In Schwab, the Supreme Court modified Taylor, holding that Rule 4003′ s 30day time limit applies to objections based on three, and only three elements of a claimed Schedule C exemption: (1) the description of the exempted property; (2) the Code provisions governing the claimed exemptions; and (3) the amount listed in the column titled â value of claimed exemption. Schwab, 130 S.Ct. at 2663. When the objection is based on other elements, the debtor’s market value estimation and the estate’s right to retain any value in the property beyond the value of the exempted interest, the 30day time limit does not apply. See id. at 2665, n. 15. According to the Supreme Court in Schwab, a trustee or other interested party has no obligation to object to an exemption claim unless the basis for that claim is found on the face of Schedule C. See id. at 2665.
HOMESTEAD vs ACQUISITION OF PROPERTY, PLUS POST-PETITION APPRECIATION OF REALTY.
1215 DAY LIMIT ON ACQUIRING HOMESTEAD:
Banner Bank v. Johns (In re Johns) 9th Cir. BAP No. ID-14-1049-KiDJu BAP concluded that the second dwelling on Parcel II (contiguous with Parcel I containing Debtor’s residence) does not defeat the Johns’ right to include it as part of their homestead, the Bank’s argument collapses as to Parcel III. In other words, because Parcel II is preserved as part of the homestead, it is irrelevant that Parcel III is not itself contiguous to Parcel I because Parcel III is contiguous to Parcel II, which is contiguous to Parcel I.
VI. CONCLUSION For the reasons set forth above, the Bank did not carry its burden to prove the Johns’ claimed homestead exemption was improper. Therefore, we AFFIRM the bankruptcy court’s order overruling the Bank’s objection to the Johns’ claim of homestead exemption, thereby recognizing Parcels I, II and III as exempt under Idaho Code § 55-1003.
Secured Debt and Settlement Between Trustee and Secured Creditor
In re Roach, Cc-18-1144-KuTaF (9th Cir. BAP 1/29/19 These appeals are about Ms. Roach’s homestead exemption in proceeds received by the bankruptcy estate after the sale of her Property. In California, the homestead exemption may exceed home equity on the petition date. Wilson v. Rigby (In re Wilson), 909 F.3d 306, 310 (9th Cir. 2018). The allowed amount of the debtor’s homestead is determined when the subject property is sold rather than being fixed as of the date the debtor files bankruptcy. Robertson v. Alsberg (In re Alsberg), 161 B.R. 680, 684 (9th Cir. BAP 1993), aff’d 68 F.3d 312 (9th Cir. 1995). … Because Omaha Bank assigned the money portion of its lien to the bankruptcy estate, the bankruptcy court properly determined that under the terms of the compromise, Ms. Roach was not entitled to claim a homestead exemption in the sale proceeds attributed to the transferred lien.
On appeal, Mr. DeBerry relied on Hawk v. Engelhart (In re Hawk), 871 F.3d 287 (5th Cir. 2017) The Fifth Circuit held that 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 under the state proceeds rule. Like the IRA proceeds rule applicable in Hawk, the state homestead proceeds rule, TEX. PROP. CODE § 41.001(c), provides that “proceeds of a sale of a homestead are not subject to seizure for a creditor’s claim for six months after the date of sale.”
Wilson v. Rigby, 17-35716 (9th Cir. Nov. 27, 2018) Appreciation in a Home Is Exempt in California, But Not in Washington, Circuit Says
The panel affirmed the district court’s decision affirming the bankruptcy court’s refusal to permit a Chapter 7 debtor to amend a bankruptcy schedule to reflect a post-petition increase in the value of property that was the subject of a homestead exemption under Washington law. The panel held that the debtor’s claimed exemption was limited to the amount to which she was entitled under Washington law as of the petition date because, whether claiming federal or state law exemptions, the value of the exemption is fixed by reference to the date of the filing of the bankruptcy petition.
In re Gebhart, United States Ninth Circuit, 09/14/2010 In consolidated Chapter 7 bankruptcy petitions in which the value of debtors’ homes increased so that they had equity in excess of the homestead exemptions, the bankruptcy court’s order approving the appointment of a real estate broker to sell the home for the benefit of the estate is affirmed where 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.
In re Awayda, This matter is before the Court following a hearing on an Objection to Claim of Exemptions and a Motion for Turnover Order filed by Kristin Wilson, Chapter 7 trustee (“Trustee”). The Trustee challenges the Debtor’s claimed exemption in proceeds from the sale of her homestead on the basis that the exemption could expire at a later date. Because the exemption was validly claimed as of the petition date, however, the Debtor is unconditionally entitled to the exemption regardless of any potential postpetition developments. The Trustee’s requested relief will therefore be denied.
In re Smith, 3:10-bk-19970-MCW Motion for Turnover 08/26/14 Entered 08/26/14 (But order is from Collins) the Court finds that the Proceeds from the sale of the Debtors’ exempt Arizona homestead remain exempt to the extent that the Proceeds were utilized to find and acquire their new home in Utah, to prepare it for occupancy, and to relocate there. However, $22,538.78 of the Arizona homestead sale proceeds were not so utilized by the Debtors within Arizona’s 18-month reinvestment period. This sum must be turned over to the Trustee by the Debtors.
In re Smith __ B.R __ (9th Cir. BAP 2006) HELD: FAILURE TO REINVEST HOMESTEAD PROCEEDS LEAVES FUNDS NON-EXEMPT
Exemptions are generally determined as of the petition date. However, where an applicable state law requires compliance with a pre-condition to maintain exempt status. The debtors’ failure to reinvest homestead proceeds within the State law statutory time frame (which expired postpetition) extinguished the exemption even though no timely exemption exemption was filed. The funds thus became subject to turnover.
In re Jacobson, No. 10-60040 (US 9th Cir, 04/23/2012), In bankruptcy proceedings in which the trustee filed a complaint claiming that certain money and property belonged to the bankruptcy estate, the bankruptcy appellate panel’s rejection of all claims is: 1) reversed in part, where proceeds from the sale of a homestead lost their exempt status under California law; and 2) affirmed in part, where a) rental property and its income was solely owned by the debtor’s husband, b) the trustee lacked standing to claim that the husband’s inheritance, which was used to purchase the rental property, belonged to the bankruptcy estate from earlier bankruptcy proceedings, and c) judicial and collateral estoppel did not require turnover of the rental property.
In re: Greene, No. 07-16067 (US 9th Circuit Court of Appeals, October 5, 2009)
In debtor’s appeal from the district court’s order affirming a bankruptcy court’s decision limiting the debtor’s homestead exemption in his bankruptcy petition to $125,000 pursuant to 11 U.S.C. section 522(p), the order is affirmed in part where no pre-petition appreciation of the property at issue occurred. However, the order is reversed in part where “any amount of interest that was acquired,” as used in section 522(p)(1), meant the acquisition of ownership of real property and the monetary cap in section 522(p) did not apply to property to which a debtor acquired title more than 1215 days before she or he filed a bankruptcy petition.
In re Landahl, __ B.R. __, 2006 WL 506034 (Bankr. M.D. Fla. 3/2/06) HELD, HOMESTEAD CAP APPLIES IN ALL STATES Another Florida bankruptcy judge, this time in Tampa, has given broad application to the new BAPCPA provision capping the exemption for homesteads acquired less than 1,215 days before bankruptcy. Judge May joined several other judges who have held that the BAPCPA amendment limiting the homestead exemption to $125,000 applies in all states and not only those which give their residents a choice between the federal and state exemption schemes.
In re Virissimo, 332 B.R. 201 (Bkrtcy.Nev. 2006) LINDA B. RIEGLE, Bankruptcy Judge. HOMESTEAD CAP APPLIES IN ALL STATES (IN THIS CASE NEVADA) § 522(p)
In re Virissimo and In re Heisel, (BK Ct District of NV) 10/31/05 – 11 U.S.C. § 522(p) is applicable even though Nevada does not allow the choice of federal exemptions. Because the debtors acquired their homes within the 1215 days before the filing they are limited to the $125,000 homestead set forth in that § notwithstanding the fact that the Nevada homestead is higher.
In re McNabb (D.Az 6/23/05 – J. Haines) re: homestead exemption – AZ is an opt out state, therefore $125,000 cap provided in Section 522(p) does not apply.
In re Summers, 344 B.R. 108 (Bkrtcy.D.Ariz. 2006) CAP ON HOMESTEAD EXEMPTION IMPOSED BY BAPCPA APPLIES TO OPT-OUT STATES TOTAL OF CAP ON HOMESTEAD EXEMPTION PLUS “SAFE HARBOR” EQUITY CANNOT EXCEED THE TOTAL HOMESTEAD EXEMPTION ALLOWED UNDER ARIZONA LAW Where debtors acquired home within 1,215 days of filing the petition, but some of the proceeds for purchase came from sale of previous homestead acquired before 1,215 days, debtors argued that the “safe harbor” provision of § 522(p)(2)(B) provided that the $125,000 cap does not apply any of the equity in their home. The court disagreed, saying the Code puts a cap of $125,000 in equity on the home purchased within 1,215 days, including the equity which came from the sale of a home purchased beyond the 1,215-day period, but the combined exemption could not exceed the $150,000 homestead exemption provided under Arizona law. Distinguished result in Wayrynen due to unlimited Florida homestead exemption.
In re Sainlar, 344 B.R. 669 (Bkrtcy.M.D.Fla. 2006) HELD: BAPCPA CAP ON HOME EQUITY DOES NOT APPLY TO EQUITY ACQUIRED BY NATURAL INCREASE DUE TO MARKET § 522(d), 522(p)
In a case in which the residence was purchased more than 1,215 days prior to filing bankruptcy, and accordingly, the $125,000 cap on equity purchased within 1,215 days did not apply, as prescribed under BAPCPA [Code section 522(p)], the court held that the cap did not apply to substantial equity arising within 1,215 days due to appreciation not caused by the debtor’s “purchased” or “acquired” equity during that time period.
[ed. note: in this case The National Association of Consumer Bankruptcy Attorneys (NACBA) filed an amicus brief in support of the debtor’s position]
In re Laconte, 342 B.R. 809 (Bkrtcy.D.Mont. 2005) (Dec. 8). HELD: UNDER BAPCPA DEBTOR’S CONVERSION OF NON-EXEMPT PROPERTY TO OSTENSIBLY EXEMPT HOMESTEAD EQUITY WAS FRAUDULENT.
The debtor filed bankruptcy on April 21, 2005 . . . just one day after the effective date of that portion of BAPCPA dealing with homestead exemptions.
Acting pursuant to a bankruptcy attorney’s advice, debtor then sold several non-exempt motor vehicles and an interest in a non-exempt farm and used the cash proceeds to pay down some of the debt on the home, thus increasing the amount of equity claimed exempt.
The court held ” … Debtors’ sale of nonexempt assets and application of the proceeds to the principal balance of their home mortgage was a violation of 11 U.S.C. § 522(o).
Section 522(o) provides that the homestead exemption “. . . shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt …”
The court discussed the meaning of the phrase “hinder, delay, or defraud” within the context of § 522(o).
HOMESTEAD IN A MOTOR HOME?
In re Irwin, 293 B.R. 28 (Bkrtcy.D. Ariz. 2003) – a judge Haines decision – held that the term “mobile home” as used in the statute is broad enough to include a motor home in which the debtors actually reside.
HOMESTEAD - INTENT TO REMAIN?
In Re Gilman, (9th Cir. 4/13/18) April 13, 2018. In a bankruptcy matter, the Ninth Circuit held that the bankruptcy court did not abuse its discretion in granting debtor’s motion for relief from judgment on the ground of excusable neglect, even though debtor did not initially oppose creditors’ objection to the homestead exemption. But the Circuit remanded because the bankruptcy court concluded that the debtor established his claim to a homestead exemption under California law without a determination as to whether debtor intended to continue to reside in the property.
DATE OF PETITION SETS HOMESTEAD RIGHTS
In re Rachel Earl 16-16428 (9th Cir, Ct of Appeals, 11/27/17)
Rachel Earl, an Arizona resident, owned two property: one she lived in and one she rented out. Unfortunately the home she lived in was foreclosed BEFORE her chapter 13 case was filed; as a result she did not have title to the home when the bankruptcy was filed. Eventually the court decided that since she did not own the property she could not use bankruptcy to undo the foreclosure (trustee’s sale). Then Ms. Earl elected to convert her case to a chapter 7 and claim the rental property as her homestead. The court ruled that she could not homestead the “rental property” because she was not living in the rental property when her bankruptcy was filed. As a result she lost both homes.
Note – some say this opinion in the face of Siegel, Gebhardt, and dozens of others at all court levels. Bankruptcy Rule 1009(a) gave her the right to amend her schedules and claim an exemption. Arizona law allows claiming a homestead exemption at any time prior to a sale of the property. Many of us disagree feeling like the court follows the law.
The bankruptcy judge’s decision was upheld in district court; the Ninth Circuit reached the same result.
The Snapshot Rule Prevails: Date of Filing Petition Fixes Exemptions
The Ninth Circuit’s opinion is based primarily on the ‘snapshot rule’ stemming from White v. Stump, 266 U.S. 310, 313 (1924), where the Supreme Court held in 1924 that bankruptcy exemptions are fixed at the time of filing. Refining the rule, the high court held in 1943 that the “bankrupt’s right to a homestead exemption becomes fixed at the date of the filing of a petition in bankruptcy and cannot thereafter be enlarged or altered by anything the bankrupt may do.” Myers v. Matley, 318 U.S. 622, 628 (1943).
The snapshot rule was designed to protect debtors, not hurt them. As shown by recent appeals court authority, the snapshot is designed to give finality to exemptions on the filing date so a debtor can liquidate exempt property after filing in chapter 7 without losing the exemption. For example, the Fifth Circuit ruled in Hawk v. Engelhart (In re Hawk), 871 F.3d 287 (5th Cir. Sept. 5, 2017), that exempt property on the filing date does not lose its exempt status even if it is converted to nonexempt property after the filing of a chapter 7 petition. In other words, the snapshot rule is a shield for the debtor, not a sword in the hands of a trustee. Bill Rochele, ABI
Practice tip: Move into the rental house, then: (1) dismiss the 13 and then file a chapter 7 after waiting 180 days, or (2) file a chapter 7 and then dismiss the Chapter 13 (assuming your jurisdiction allows). Make sure the debtors’ intent is to live in the house.
LLC HOLDS TITLE TO RESIDENTIAL PROPERTY - NOT HOMESTEAD
In some states, like Arizona, Vermont and Ohio, property cannot be a homestead if ownership is through a limited liability corporation, or LLC. In other states, like Nevada, property owned through an LLC can be a homestead, according to Bankruptcy Judge Colleen A. Brown of Burlington, Vt.
In re Hewitt, 16-11240 (Bankr. D. Vt. Nov. 8, 2017) A man attempted unsuccessfully to strip a judicial lien from his home under Section 522(f). The debtor failed because the home was not his “homestead” at the time the lien attached, Judge Brown said in her Nov. 8 opinion.
The man and a woman purchased a home in their own names. Later, they transferred title to an LLC of which they were the sole owners and members. It was undisputed that the man had always lived in the home and paid all expenses and taxes. Title was in the LLC when a judgment lien attached to the home.
Under Vermont law, Judge Brown said that an LLC gives a member the right to share in profits and receive distributions. However, she said that “when an LLC owns property, its members do not own that property in their individual capacity.” Therefore, Judge Brown said, “even if [the debtor] was the sole member of [the LLC], that would not entitle him to an ownership interest in the Property during the time the LLC held title to the Property, equitable or otherwise.” She also said that Vermont has “narrowly” construed “the right to a homestead interest based upon equitable title.”
Presumably, there would be no reason a prospective debtor could not transfer property from an LLC to himself or herself before filing, unless the LLC had creditors who might claim that the transfer was a fraudulent transfer. If it were a fraudulent transfer with “actual intent,” the debtor could lose his or her discharge by trying to resurrect a homestead exemption.
TRUSTEE SELLING EXEMPT HOMESTEAD - CARVE OUT IRS LIEN
Two chapter 7 cases. Debtors’ homes encumbered by first and IRS lien = no equity for Debtors. Debtors claim homestead exemption. Trustee enters into “carve out” with IRS so trustee can sell debtors’ residences. Debtors convert to 13 and chapter 7 trustee and attorney claim administrative expenses.
Bankruptcy court finds “The Trustee’s efforts to sell the Homes were unsupported by any provision of the Code and they were clearly inconsistent with one of the primary purposes of the Code—providing debtors with a fresh start through proper exemptions.
With those exemptions in place, the Trustee’s efforts to negotiate the Carve-Outs with the IRS and sell the Homes were not reasonably likely to yield proceeds to distribute to unsecured creditors. Without a benefit to unsecured creditors, administration of the Homes was neither necessary nor reasonably likely to benefit the Debtors’ estates. Accordingly, none of the Trustee’s services for which he seeks compensation are allowable under § 330(a). The Court will deny the Trustee’s fee applications in their entirety.” (Christensen & Bird, Bankruptcy No. 15-29773, Bankruptcy court, District of Utah 12/14/16)
OBJECTION TO EXEMPTIONS - TRUSTEE
In re Adam Lee, (ADAM LEE v.DANE S. FIELD, Chapter 7 Trustee) No. 15-17451 (United States Court of Appeals, Ninth Circuit 5/7/18)
Before filing a petition in bankruptcy, Adam Lee transferred his interests in two properties into a tenancy-by the-entirety estate, and subsequently claimed an exemption for those interests under 11 U.S.C. § 522(b)(3). The trustee successfully brought an adversary proceeding to set aside Lee’s transfers of those interests. When the trustee sought a turnover order to compel Lee to relinquish possession of the properties, Lee resisted. He argued that the trustee had failed to make a timely objection to the exemptions under Rule 4003 of the Federal Rules of Bankruptcy Procedure, and therefore Lee’s exemptions were valid notwithstanding the court’s avoidance of the transfer. The bankruptcy court disagreed. It granted the turnover order, thus denying the claimed exemptions. We hold that the trustee’s adversary complaint contesting the basis for Lee’s exemptions qualified as an objection to those exemptions under Rule 4003. We therefore affirm.
TRUSTEE OFFSETTING EXEMPTIONS
Law v. Siegel, No. 12-5196 United States Supreme Court, 03/04/2014 The Bankruptcy Court exceeded the limits of its authority when it ordered that the $75,000 protected by the debtor’s homestead exemption be made available to pay the bankruptcy trustee’s attorney’s fees, which were incurred by the trustee in overcoming the debtor’s fraudulent misrepresentations.
APPRECIATION OVER EXEMPTIONS INURES TO ESTATE
In Re: Bradley Orton, No. 11-4157 United States Third Circuit, 07/20/2012 In bankruptcy proceedings filed under Chapter 7, decisions of the bankruptcy and district courts that the trustee of the estate, and not the debtor, is entitled to any post-petition appreciation in value of the estate’s assets that surpasses the dollar amount exempted pursuant to the wildcard exemption in 11 U.S.C. section 522(d)(5), are affirmed where: 1) the straightforward application of the teachings and instructions of Schwab v. Reilly, 130 S. Ct. 2652 (2010), means that the debtor properly exempted one dollar’s worth of his oil and gas lease and no more; and 2) when a debtor retains only an interest in an asset, rather than the asset itself, the debtor is limited to the value of the exemption and the estate is entitled to any appreciation in the asset’s value beyond the amount exempted.
In re: Addison, No. 07-2064, 07-2727 (U.S. 8th Circuit Court of Appeals, August 07, 2008)
In a bankruptcy case, rulings against debtor and denial of discharge are affirmed in part and reversed in part where: 1) the bankruptcy court clearly erred in finding that debtor converted nonexempt property into his homestead with the intent to hinder, delay, or defraud a creditor; 2) it erred similarly in finding debtor transferred nonexempt funds into a Roth IRA with such intent; 3) the resultant denial of discharge required reversal; and 4) two 26 U.S.C. section 529 tuition savings accounts opened for the benefit of his children were nonexempt property of his bankruptcy estate.
ARS 33-1126(a) protects up to $300 (for each debtor) in one bank account on the day of filings have not yet been physically paid out of their bank account prior to the filing of the bankruptcy – these funds are property of the estate and the Trustee will demand surrender of the funds. The Debtor must reimburse the Trustee for the funds that were in the account on the date of filing, minus their exemption of $300. In re Sawyer, Judge Curley 3/06 (9th Circuit).
In re Palidora 310 B.R. 164, *167 (Bkrtcy.D.Ariz.,2004) This is a footnote. RJH holds that wages in a bank account are not exempt. Note the (A)(4) language “to be paid” as opposed to (A)(3) “monies received or payable to”. This might mean that disability in a bank in a bank is not exempt and See The Arizona Court of Appeals, however, has held that “the earnings protection of [A.R.S.] §§ 33–1131 and 12–1598.10 does not extend to monies disbursed to the debtor’s bank account.” Frazer, Ryan, Goldberg Keyt & Lawless v. Smith, 184 Ariz. 181, 186, 907 P.2d 1384, 1389 (App. Div. 1 1995).
Why aren’t wages protected once deposited into a bank account?
Ryan v. Smith, 184 Ariz. 181 (App.1995), 907 P.2d 1384, “In summary, the earnings protection of §§ 33-1131 and 12-1598.10 does not extend to monies disbursed to the debtor’s bank account. We acknowledge that the earnings exemption is thus diluted, at least for debtors who deposit their earnings in bank accounts. But as we have said on other occasions, “An upholding is not an endorsement.” McPeak v. Industrial Comm’n, 154 Ariz. 232, 235, 741 P.2d 699, 702 (App. 1987). Those who believe that the earnings exemption should endure beyond disbursement to the employee must direct their remedial efforts to the legislature, not the courts. The trial court correctly granted Frazer judgment on its writ of garnishment.”
Exemption of Social Security funds: 42 U.S.C. § 407
ARS 14-6211. Ownership of accounts
Theory of oral trust in Arizona: such as making your debtor a fiduciary & custodian of trustor’s funds not intended as a give. In Arizona oral trusts are supported by law and case law. Statute of frauds doesn’t apply to trusts of personal property (as long as not testamentary) Cashion v. Bank of America, 30 Ariz. 172 (1926);
A.R.S. 14-10407. Evidence of oral trust
New rule governing garnishment: 31 C.F.R. Part 212: (Author’s note – the following may not apply in bankruptcy because this is a financial institution issue, not directed at creditors or bankruptcy law or Code – including a trustee’s right to go after non-exempt property and case law interpreting whether it is non-exempt).
Summary: new Treasury rule now requires financial institutions to determine whether there are direct deposit federal benefits in an account that is being garnished. If so, the institution is required to protect two months of benefit payments so that they remain available to the account holder. Consumers with protected federal benefits will no longer have to object to the garnishment or actively seek the release of these funds. Rather, the rule places the burden on the institution to determine, in the first instance, whether the federal funds are exempt from garnishment.
Effective May 1, 2011, financial institutions have been handed yet another regulatory burden regarding the processing of garnishment orders. The Department of the Treasury has issued interim final rules to restrict the garnishment of various federal benefit payments (“Federal Benefits”) deposited via ACH.
For purposes of the rule, Federal Benefits include:
• Social Security and Supplemental Security Income benefits;
• Veterans benefits;
• Federal Railroad retirement, unemployment, and sickness benefits;
• Civil Service and Federal Employee retirement benefits.
When is the funds still property of the debtor when the check is written or when the check is honored?
In re Cresta Tech.(9th Cir BAP) holds that the defining date is the date on which the check is honored Facts: Cresta Technology Corporation’s CFO, Matthew Lewis, learned this the hard way after Cresta filed a case under chapter 7 bankruptcy, and the court-appointed trustee pursued a claw-back action against Lewis. The action successfully targeted a check Cresta provided to Lewis prior to the petition date, which reimbursed Lewis for certain legal fees he paid on behalf of Cresta. Cresta’s bank, however, did not honor the check until after the petition date. Both the Bankruptcy Court of the Northern District of California and the BAP found that the payment to Lewis was transferred when the check was honored by the Debtor’s bank, after the petition date, and it therefore constituted an impermissible postpetition transfer.
COMMINGLED FUNDS (INCLUDES SOCIAL SECURITY ISSUES)
Social Security benefits commingled in an account with nonexempt funds retain their exempt status
In re Hildestad 0:09-bk-17733-EWH (Bankr.Ariz. 1/20/2010) (Bankr.Ariz., 2010), social security benefits commingled in an account with nonexempt funds retain their exempt status. “The deposit of exempt funds in a bank account does not affect a debtor’s exemption, nor does it change the exempt character of the funds, so long as the source of the exempt funds is reasonably traceable.” In re Hanson, 41 B.R. 775 (Bankr. D. N.D. 1984); Matthews v. Lewis, 617 S.W.2d 43 (Ky. 1981) (was a case applying state law to trace the funds and retain the exemption}. Also, in Arizona it appears that we recognize the “lowest intermediate balance rule” for tracing purposes. See A.R.S. Ann. § 47-9315, Comment 3 and Example 1; see also Case Corp. v. Gehrke, 208 Ariz. 140 n. 4, 91 P.3d 362 n. 4 (App. 2004). In re Moore, 214 B.R. 628 (Bankr. D. Kan. 1997); NCNB Financial Services, Inc. v. Shumate, 829 F. Supp. 178 (W.D. Va. 1993), aff’d, 45 F.3d 427 (4th Cir. 1994); Hatfield v. Christopher, 841 S.W.2d 761 (Mo. Ct. App. W.D. 1992); see also In re Frazier, 116 B.R. 675 (Bankr. W.D. Wis. 1990) (social security benefits commingled with other exempt funds remain exempt)
In re Matsuura, 13-40226-JDP, (D. Idaho 12/2013) exempting the exempt portion of tax refunds and spending the nonexempt portion. In Idaho the earned income credit portion of tax refunds is exempt. The trustee argued commingling and lost.
For state law cases that might be helpful, see Case Corp. v. Gehrke, 91 p.3d 362. (See FN 4, referencing the comments to ARS 47-9315(B)(2) for support on lowest intermediate balance rule).
Philpott v Essex County Welfare Board, 409 U.S 413, 93 S.Ct. 590 (1973) holds that where defendant deposited his lump sum Social Security disability check into a bank account, pursuant to the Social Security Act, 42 USC 407, federal law protects the SSA “moneys paid” even after deposit into the debtors’ bank account. Philpott cites Porter v Aetna Casualty & Surety Co., 370 U.S. 159, 82 S.Ct 1231 (1962) which gave the same protection to U.S. Veterans Administration benefits deposited into a credit union. In Porter, the Supreme Court held that the purpose of exemption statutes was to protect the government benefits intended by Congress for the support and maintenance of the beneficiaries. The Porter case also held that exemption laws should be liberally construed to protect the exempt funds. There are no “implied” exceptions to the protection against creditors which Congress gave in 42 USC 407, Bennett v. Arkansas, 485 U.S. 395, 108 S.Ct. 1204 (1988).
Philpott and Porter thus stand for the common sense principle that when Congress protected SSA and Veterans benefits from seizure, Congress intended that the recipient actually receive his SSA benefits and spend them to support himself and his family.
INTEREST ON GOVERNMENT BENEFITS:
Interest does not destroy the exempt character of government benefits: In Lawrence v. Shaw, 300 U.S. 245, 57 S.Ct. 443, 81 L.Ed. 623 (1937), the Court held that bank credits derived from veterans’ benefits were within the exemption, the test being whether as so deposited the benefits remained subject to demand and use as the needs of the veteran for support and maintenance required. It was noted that the allowance of interest on such deposits would not destroy the exemption.
Vukovich v. Ossic, 50 Ariz. 194, 70 P.2d 324 (Ariz. 1937) Does not lose exemption because co-mingled.
Frazer, Ryan, Goldberg, Keyt and Lawless v. Smith, 184 Ariz. 181, 907 P.2d 1384 (Ariz.App. 1995). LOSE EXEMPTIONS IF CO-MINGLED.
State Retirement Funds:
Forys v. Forys, 2010 WL 199695 (Ariz. App. 2010) (not reported). LOSE EXEMPTIONS IF CO-MINGLED. Also cites cases for retirement funds and the like from other jurisdictions.
In re PALIDORA, No. 2-03-15494-PHX-RJH. 5/24/04, Amded 6/7/04, RJ. HAINES, Bankruptcy Judge. The Court must here determine whether the cash derived from wages paid prepetition retains the status of a wage exemption, and whether cash derived from child support paid to the debtor prepetition is property of the estate. The Court concludes that the Arizona exemption for wages does not apply once they are paid, but that Arizona statutes and case law deem child support payments to be for the benefit of the child and therefore not property of the parent debtor’s estate, and in any event are exempt, even after receipt and deposit.
REAL ESTATE COMMISSIONS: In re Roetman, 405 B.R. 335 (Bankr.D.Ariz. 2009) held that real estate commissions are included among the types of wage earnings exempt pursuant to A.R.S. 33-1131. Warfield v. Alaniz, 2008 WL 700160 (D. Ariz. 2008); contra In re Osworth, 234 B.R. 497 (9th Cir. BAP 1999).
529 and 530: IRS section 529 college plans and educational IRAs for the benefit of the debtor’s child, stepchild, grandchild or stepgrandchild are not property of the bankruptcy estate to some extent, which is similar to an exemption. 0% exempt for contributions made less than 365 days before bankruptcy.$5,850 exempt limit for all accounts with the same beneficiary for contributions made 365 – 720 days before bankruptcy. 100% for contributions made more than 720 days before bankruptcy. 11 USC 541 (b)(5) and 541 (b)(6)(B) NOTE: 11 521(c) In addition to meeting the requirements under subsection (a), the debtor shall file with the court a record of any interest that a debtor has in an education individual retirement account (as defined in section 530(b)(1) of the Internal Revenue Code of 1986) or under a qualified State tuition program (as defined in section 529(b)(1) of such Code).
RETIREMENT, ANNUITY ACCOUNTS and PENSION PLANS
Inherited IRA: The US Supreme Court ruled unanimously in Clark v. Rameker, (13-299 6/12/2014) that funds held in inherited individual retirement accounts (IRAs) are not “retirement funds” for bankruptcy purposes. Section 522 of the Bankruptcy Code [text] exempts tax-exempt retirement funds from the bankruptcy estate.
In Arizona, as with some other states, there are state exemptions that may protect these inherited IRA, even if they are not protected under federal law(s). See A.R.S. Section 33-1126. But as we all know as the laws change so do the answers to the questions.
Inherited 401k – using Arizona exemptions not federal:
In re Pacheco – Warfield argues debtor cannot exempt 401k inherited from ex-husband (33-1126). Court (J. Ballinger 6/2015) disagrees.
Definitions of terms in an annuity (From Annuities For Dummies, By Kerry Pechter)
Warnings about annuities: Notes from ACBC: 12/10 – be careful with annuities. I agree that you must get copy of the annuity. Determine owner and beneficiary and whether it is qualified as a retirement account under the IRS code. I know of a case where the debtor was the beneficiary of an annuity that was set up to settle an automobile accident personal injury claim. The other driver’s insurance company remained the owner of the annuity, as is standard practice. There was about a 9 month period a few years ago when Arizona exempted all annuities, regardless of who was the owner. The legislature then jammed through a law with an emergency clause that went into effect immediately and required that the debtor be the owner of the annuity for 2 years to exempt it. The debtor in the case filed chapter 7 shortly after the law changed, not being aware of the change. Judge Baum reluctantly ruled that the annuity was not exempt. The chapter 7 trustee sold the annuity future income stream to an investor at a cash discount.
Under the current law an ordinary non-retirement annuity is exempt where the debtor is the owner for two full year and there are certain specified beneficiaries. ARS 33-1126(A)(7) requires this: An annuity contract where for a continuous unexpired period of two years such contract has been owned by a debtor and has named as beneficiary the debtor, debtor’s surviving spouse, child, parent, brother or sister, or any other dependent family member. In re Hummel, __ B.R. __, 2010 WL5076421 (9th Cir. BAP, Nov. 19, 2010) “ARS Section 20-1131(D) and 33-1126(A)(6) and (7) require that the child of a debtor named as a beneficiary be a dependent in order for the debtor to obtain an exemption under those sections” Ninth Circuit reversed BAP and remanded 8/10/12 “As a matter of first impression in Arizona, we conclude that the statutory text does not require a debtor’s child to be a “dependent” to qualify for the exemption. Therefore, we REVERSE the Bankruptcy Appellate Panel’s (“BAP”) ruling and REMAND for further proceedings.
It will be exempt per 522(b)(3)(C) if the annuity is “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.”
In addition or in the alternative it will be exempt per ARS 33-1126 (B) if it is “Any money or other assets payable to a participant in or beneficiary of, or any interest of any participant or beneficiary in, a retirement plan under section 401(a), 403(a), 403(b), 408, 408A or 409 or a deferred compensation plan under section 457 of the United States internal revenue code of 1986, as amended, shall be exempt from any and all claims of creditors of the beneficiary or participant. This subsection shall not apply to any of the following: 1. an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the United States internal revenue code of 1986, as amended. The interest of any and all alternate payees is exempt from any and all claims of any creditor of the alternate payee. 2. Amounts contributed within one hundred twenty days before a debtor files for bankruptcy. 3. The assets of bankruptcy proceedings filed before July 1, 1987.
By the way, it is my position that 522(b)(3)(C) provides broader protection than ARS 33-1126 (B) because 522(b)(3)(C) has no exception for contributions within 120 days before filing bankruptcy. On the other hand, I believe that the $1,171,650 limit on IRAs (sections 408 and 408A of internal revenue code) in 522(n) controls over 33-1126 (B), which has no dollar limit.
In Re: Krebs>, No. 06-2959 (U.S. 3rd Circuit Court of Appeals, May 19, 2008)
In an appeal addressing whether a debtor’s right to receive payment from an individual retirement account (IRA) may be exempt from the bankruptcy estate under 11 U.S.C. section 522(d)(10)(E), even though the debtor has not yet reached retirement age, the circuit court rules that an intervening Supreme Court decision implicitly overrules prior precedent, and thus the debtor’s right to receive payments from her IRA may be exempt from the bankruptcy estate under section 522(d)(10)(E).
In re Payne (9th Cir. BAP 2005) ANNUITY MAY BE EXEMPT AS LIFE INSURANCE –
Single-premium annuity may qualify for bankruptcy exemption as life insurance under California state law only if primary purpose is insurance and not investment. (Note- this is not an Arizona case.)
Patterson vs. Shumate, 504 U.S. 753 (1992), the Supreme Court was presented with the question whether the debtor’s interest in an employer pension plan that contained the anti-alienation provision required by Title I of the Employee Retirement Income Security Act of 1974 (ERISA) was included or excluded from the bankruptcy estate under section 541. The Court held that the term “applicable nonbankruptcy law” in section 541(c)(2) was not limited to state law (and thus included ERISA and other federal law) and that the anti-alienation provision required for qualification under Title I of ERISA was enforceable under applicable nonbankruptcy law. The Court concluded that under section 541(c)(2) the debtor’s interest in the pension plan was excluded from the bankruptcy estate. 504 U.S. at 760.
Rousey et ux v. Jacoway, (8th Cir CT APP) No. 03¬1407. April 4, 2005. Cite as: 544 U. S. ____ (2005) HELD: The Rouseys can exempt IRA assets from the bankruptcy estate because the IRAs fulfill both of the §522(d)(10)(E) requirements at issue here―they confer a right to receive payment on account of age and they are similar plans or contracts to those enumerated in §522(d)(10)(E). Pp. 4¬14. (a) The Court reaffirms its suggestion in Patterson v. Shumate, 504 U. S. 753, 762¬763, that IRAs like the Rouseys’ can be exempted from the bankruptcy estate pursuant to §522(d)(10)(E). Pp. 4¬5. (b) The Rouseys’ IRAs provide a right to payment “on account of . . . age” within §522(d)(10)(E)’s meaning. The quoted phrase requires that the right to receive payment be “because of” age. Bank of America Nat. Trust and Sav. Assn. v. 203 North LaSalle Street Partnership, 526 U. S. 434, 450¬451. This meaning comports with the common, dictionary understanding of “on account of,” and §522(d)(10)(E)’s con-text does not suggest another meaning. The statutes governing IRAs persuade the Court that Jacoway is mistaken in arguing that there is no causal connection between that right and age or any other factor because the Rouseys’ IRAs provide a right to payment on demand. Their right to receive payment of the entire balance is not in dispute. Because their accounts qualify as IRAs under 26 U. S. C. §408(a), they have a nonforfeitable right to the balance held in those accounts, §408(a)(4). That right is restricted by a 10 percent tax penalty on any withdrawal made before age 59½, §72(t). Contrary to Jacoway’s contention, this 10 percent penalty is substantial. It applies proportion-ally to any amounts withdrawn and prevents access to the 10 percent that the Rouseys would forfeit should they withdraw early. It therefore effectively prevents access to the entire balance in their IRAs and limits their right to “payment” of the balance. And because this condition is removed when the accountholder turns age 59½, the Rouseys’ right to the balance of their IRAs is a right to payment “on account of” age. Pp. 5¬8.
(c) The Rouseys’ IRAs are “similar plan[s] or contract[s]” to the “stock bonus, pension, profit sharing, [or] annuity . . . plan[s]” listed in §522(d)(10)(E). To be “similar,” an IRA must be like, though not identical to, the listed plans or contracts, and consequently must share characteristics common to them. Because the Bankruptcy Code does not define the listed plans, the Court looks to their ordinary meaning. E.g., United States v. LaBonte, 520 U. S. 751, 757. Dictionary definitions reveal that, although the listed plans are dissimilar to each other in some respects, their common feature is that they provide income that substitutes for wages earned as salary or hourly compensation. That the income the Rouseys will derive from their IRAs is likewise income that substitutes for wages lost upon retirement is demonstrated by the facts that (1) regulations require distribution to begin no later than the calendar year after the year the accountholder turns 70½; (2) taxation of IRA money is deferred until the year in which it is distributed; (3) withdrawals before age 59½ are subject to the 10 percent penalty; and (4) failure to take the requisite minimum distributions results in a 50 percent tax penalty on funds improperly remaining in the account. The Court rejects Jacoway’s argument that IRAs cannot be similar plans or contracts because the Rouseys have complete access to them. This argument is premised on her view that the 10 percent penalty is modest, a premise with which the Court does not agree. The Court also rejects Jacoway’s contention that the availability of IRA withdrawals exempt from the early withdrawal penalty renders the Rouseys’ IRAs more like savings accounts. Sections 522(d)(10)(E)(i) through (iii)―which preclude the debtor from using the §522(d)(10)(E) exemption if an insider established his plan or contract; the right to receive payment is on account of age or length of service; and the plan does not qualify under specified Internal Revenue Code sections, including the section governing IRAs―not only suggest generally that the Rouseys’ IRAs are exempt, but also support the Court’s conclusion that they are “similar plan[s] or contract[s]” under §522(d)(10)(E).
Kaelin v. Bassett (10/21/02 – No. 02-1119) (8th Cir) Bankruptcy court erred in denying debtor leave to amend his exemptions as the court’s findings that debtor was acting in bad faith, and that amendment would prejudice the creditors, were not supported by the record.
IRA: Dudley vs Anderson, No 99-55756 (9th Cir. May 23, 2001) Under California Code of Civil Procedure 704.115(a)(3), an Individual Retirement Account may be exempt from a bankruptcy estate even if it is used primarily for retirement purposes rather than solely for retirement purposes.
Little v. Reaves, No. 00-57110 (9th Cir. April 08, 2002) Petitioner who sought and was denied exemption for her vehicle from enforcement of a secured debt could still pursue special vehicle exemptions when later filing a bankruptcy petition.
Nelson v. Ramette (03/21/02 – No. 01-6072MN) (8th Cir Ct Appeals) Debtor’s undistributed interest in his former spouse’s ERISA-qualified retirement plan, obtained pursuant to a qualified domestic relations order, is not property of his Chapter 7 bankruptcy estate.
Hebbring v. U.S. Trustee (09/11/06 – No. 04-16539) (9th Cir) The Bankruptcy Code does not, per se, disallow voluntary contributions to a retirement plan as a reasonably necessary expense in calculating a debtor’s disposable income, but rather requires courts to examine the totality of the debtor’s circumstances on a case-by-case basis to determine whether retirement contributions are a reasonably necessary expense for that debtor.
FOSTER CARE, ADOPTION SUBSIDY and OTHER GOVERNMENT ASSISTANCE
In re Adinolfi, 9th Circuit BAP, January 19, 2016 Court finds that California’s Adoption subsidy are “benefits received under the Social Security Act and are excluded from [Debtor’s] current monthly income.’”
FACTS: Debtor Nancy Adinolfi appeals from the bankruptcy court’s order denying the confirmation of her chapter 13 plan. A chapter 13 debtor whose income exceeds the applicable median must devote all of her “projected disposable income” to the payment of her unsecured creditors. The statute excludes “benefits received under the Social Security Act” from “disposable income.” The Debtor argues that Adoption Assistance payments she receives are “benefits received under the Social Security Act,” but the bankruptcy court ruled to the contrary. We hold that the bankruptcy court erred, and therefore we REVERSE.
According to this website: https://www.nacac.org/help/adoption-assistance/adoption-assistance-us/state-programs/arizona-adoption-assistance-program/, 67.23% of Arizona’s funds for adoption subsidies come from the federal government.
Perhaps this could be interpreted to mean the benefits are subject to all of the protections for social security benefits (42 USC § 407), if the funds for the subsidy are derived from the SSA?
NOTE: a new CUSTODIAL account should be opened in the child’s name, with the adoptive parent as authorized signor.
Hamblin vs Hamblin, 54 P.3d 371, 203 Ariz. 342 (2002) This Arizona case has a good description of the Adoption subsidy program but more importantly it concludes that the payment is the child’s and not the adoptive parent.
LIFE INSURANCE, including GROUP INSURANCE
In re Garcia (Juan (deceased) and Teresa Garcia vs Warfield) No. CV16-02835-PHX DGC BK NO. 0:15-bk-06493-BMW Debtor Teresa Garcia appeals an order of the bankruptcy court sustaining Trustee Lawrence J. Warfield’s objection to her claimed exemption for group life insurance proceeds paid to her as a surviving spouse. Doc. 8. Trustee asks the Court to affirm the bankruptcy court’s decision. Doc. 9. The appeal is briefed, and no party has requested oral argument. Docs. 8, 9. For reasons set forth below, the Court will reverse the bankruptcy court’s decision.
The provision relevant to this case was codified as A.R.S. § 20-1132
Traditional term life insurance vs group insurance: A.R.S. 20-1131 limits the exemption to $20,000 of 33-1126(a)(1); it is supposed to be identical to 1126(a)(6). A.R.S. 20-1132 is the absolute exemption of group life insurance benefits.
20-1132. Exemption of group life insurance proceeds from creditors; exception
INSURANCE, including DISABILITY
A.R.S. Section 33-1126 applies only to plans or programs “in use by an employer.” In re Hoffpauir, 125 B.R. 269, 272 (Bankr. D. Ariz. 1990) (Curley, J.). Thus, to the extent that Debtor’s disability income does not derive from a plan or program “in use by an employer,” the statute does not apply, and the Debtor is not entitled to claim the exemption.
Arizona insurance proceeds for exempt property:
Insurance-proceeds-re-dog-11-15-18.pdf	(28 downloads) 2:18-bk-07595-DPC Dog worth about $100. Pre-petition, dog got sick. Debtor had pet insurance, and the pet insurance reimbursed debtor $7400 for vet bills, way over the $800 pet exemption (that was applicable when Carrie filed). Under A.R.S. § 33-1125(3), insurance proceeds are exempt with respect to any personal property exempt by any of the other personal property exemptions. The statute DOES NOT specifically limit the insurance proceeds to the maximum amount of the exemption. Judge Collins agreed and said the entire $7,400 of insurance proceeds for the pet are exempt, even though they are over $800.
HSA ACCOUNT IS EXEMPT
In re Milton, 4:17-BK-03210-BCW (6/2019) is an HSA an “insurance plan”? THE COURT ISSUES ITS RULING ON THE RECORD WITH RESPECT TO THE LIFE INSURANCE PROCEEDS. BASED UPON SUCH RULING, THE COURT FINDS THAT $7,440.43 OF THE $8,297.23 IN THE PFCU ACCOUNT AS OF THE PETITION DATE ARE TRACEABLE LIFE INSURANCE PROCEEDS THAT ARE EXEMPT UNDER A.R.S. § 33-1126(A)(1). THE COURT ISSUES ITS RULING ON THE RECORD WITH RESPECT TO THE HEALTH SAVINGS ACCOUNT. BASED UPON SUCH RULING, IT IS THE DETERMINATION OF THE COURT THAT THE FUNDS, IN THE AMOUNT OF $8,172.00, IN THE HSA ACCOUNT ARE EXEMPT PURSUANT TO A.R.S. § 1126(A)(4).
Traceable funds: Hildestadt (sp?) (Hollowell) if funds can be “reasonably traced” then the exemption will cover the funds. Life insurance deposited into one account, small amount of funds added, then withdrawn, spent down and balance put into new account = “reasonably traceable” all funds, except small amount added.
Insurance statute: “or similar plans or programs” HSA designed to provide medical care and offset expenses for debtor and family. Employee must be covered by a high deductible insurance plan. Employee may use HSA to pay the expenses which would have been covered by a low deductible insurance plan.
In re Hauffbauer (? sp) – Note that Judge Curley found there was no exemption under Arizona law and the debtor’s attorney did not argue that they were exempt under 541. but see Leitch v. Christians (In re Leitch), No. 13-6009 (8th Cir. B.A.P. Jul. 16, 2013) case holding that HSA is property of the Estate; therefore not exempt (using federal exemptions). The BAP on de novo review AFFIRMED the Bankruptcy Court’s determinations that: (1) the Debtor’s health savings account (“HSA”) was not excluded from the Debtor’s bankruptcy estate pursuant to Section 541(b)(7)(A)(ii) because the HSA did not constitute a health insurance plan regulated by state law and, further, Congress would have included HSAs in Section 541(b)(7) if it intended HSAs to be excluded; and (2) the HSA could not be exempted under Section 522(d)(10)(C) or (11)(D) because the HSA funds could be used for purposes other than “disability, illness, or unemployment” and, further, Sections 522(d)(10)(C) and (11)(D) only apply to a debtor’s right to receive money, not to money that has already been received.
541 provides that a HSA that is subject to state law is not property of the estate .. so that is where the fact inquiry starts ….
Nichols v. Birdsell, No. 05-15554 U.S. 9th Circuit Court of Appeals, May 09, 2007
Debtors’ pre-bankruptcy application of their right to tax refunds to post-bankruptcy tax obligations constitutes an asset that must be turned over to the bankruptcy trustee pursuant to the Bankruptcy Code, 11 U.S.C. section 542.
Henry A. KOKOSZKA v. Richard BELFORD, Trustee, 395 U.S. 337 (89 S.Ct. 1820, 23 L.Ed.2d 349) (June 1974) – tax refunds are not “earnings”.
The provision in the Consumer Credit Protection Act limiting wage garnishment to no more than 25% of a person’s aggregate ‘disposable earnings’ for any pay period does not apply to a tax refund, since the statutory terms ‘earnings’ and ‘disposable earnings’ are confined to periodic payments of compensation and do not pertain to every asset that is traceable in some way to such compensation. Hence, the Act does not limit the bankruptcy trustee’s right to treat the tax refund as property of the bankrupt’s estate. Pp. 648—652
LARSON V. SHARP (10TH CIR.) The Tenth Circuit BAP affirmed a bankruptcy court’s denial of a chapter 7 trustee’s objection to a debtor’s exemption for tools of the trade. The court ruled that the “gainful occupation” requirement of the “tools of the trade” exemption under Colo. Rev. Stat. 13-54-102(1)(i) (2010) does not require “profitability” on the petition date.
REOPENING CHAPTER 7 TO ADD EXEMPTION
Debtor reopens chapter 7 19 years after discharge to claim homestead exemption.
In re Muscato, 98-14386 (Bankr. W.D.N.Y. March 22, 2018) When the court’s sense of equity collides with a statute, the Supreme Court held in Law v. Siegel, 134 S. Ct. 1188, 188 L. Ed. 2d 146, 82 U.S.L.W. 4140 (2014), that the statute prevails when it comes to exemptions.
Relying on Law, Chief Bankruptcy Judge Carl L. Bucki of Buffalo, N.Y., held that a debtor was entitled to a homestead exemption, although she made the claim 19 years after receiving a chapter 7 discharge. Citing the Ninth Circuit Bankruptcy Appellate panel, he said that Bankruptcy Rule 9006(b) does not apply because the Code does not require the amendment of schedules within a specified time.
FILING ADVERSARY = FILING OBJECTION TO EXEMPTION
In re Lee, No. 15-17451 (9th Circuit, May 07, 2018) Ninth Circuit affirmed bankruptcy court (D. Hawaii) ruling, affirmed by district court, finding that Trustee’s adversary proceeding constituted valid objection under FRBP 4003 to debtor’s claim of objection, and affirming turnover order of property in which debtor claimed exemption. Trustee’s avoidance action adequately notified debtor of objection to claim of exemption within deadline under FRBP 4003. Separate objection was unnecessary.
CHAPTER 13 DISMISSAL - PROPERTY REVERTS TO DEBTOR