Opinion ID: 4201280
Heading Depth: 3
Heading Rank: 2

Heading: Chapter 13: In re Frost

Text: This court later applied Zibman’s reasoning to a Chapter 13 case in which a homestead was sold during the pendency of bankruptcy proceedings. See In re Frost, 744 F.3d 384, 387 (5th Cir. 2014). The debtor in Frost sold his Texas homestead after filing for Chapter 13 bankruptcy, but because he failed to reinvest the sale proceeds in another homestead within six months of the sale, we held that the proceeds were “removed from the protection of Texas bankruptcy law and no longer exempt from the estate.” Id. at 385, 387. Frost argued that Zibman was “distinguishable because it concerned proceeds obtained prior to filing bankruptcy, whereas he sold his homestead after petitioning for bankruptcy, at a time when the homestead had already been declared exempt from the estate.” Id. at 387. Frost pointed out that 11 U.S.C. § 522(c) provides that “property exempted under this section is not liable during or after the case for any debt of the debtor that arose . . . before the commencement of the case.” Id. (quoting 11 U.S.C. § 522(c)). He also suggested “that all bankruptcy exemptions are fixed at the time of the bankruptcy petition and do not later lose their exempt status.” Id. at 386. Thus, Frost argued that “while the proceeds in Zibman were already temporarily exempted at the time of filing, the homestead was a permanent exemption and placed forever outside the estate.” Id. at 388. 8 Case: 16-20641 Document: 00514143347 Page: 9 Date Filed: 09/05/2017 No. 16-20641 Responding to Frost’s arguments, we emphasized that an “essential element of the exemption must continue in effect even during the pendency of the bankruptcy case.” Id. (quoting In re Zibman, 268 F.3d at 301). Therefore, “a change in the character of the property that eliminates an element required for the exemption voids the exemption, even if the bankruptcy proceedings have already begun.” Id. We explained: Adopting Frost’s argument would require rejecting this court’s determination in Zibman that § 522(c) does not prevent exempt property from losing its exempt status. If § 522(c) requires strict enforcement of the “snapshot rule” such that property exempted at the moment of filing can never be liable—regardless of restrictions placed on that exemption by state law or a change in the essential character of the property—then the proceeds from the sale in Zibman would have been exempted indefinitely, despite the six month limitation on that exception. Id. at 389. When Frost sold his homestead, his “interest in his homestead changed from an unconditionally exempted interest in the real property itself to a conditionally exempted interest in the monetized proceeds from the sale of that property.” Id. The “conditional exemption” that applied to the newly acquired sale proceeds “expired” when Frost failed to reinvest them in another homestead within six months. Id. Thus, we concluded that “Frost lost his right to withhold the sale proceeds from the estate.” Id.