Court Opinion

ID: 9704380
Source: CourtListenerOpinion
Date Created: 2023-08-26 00:33:25.280695+00
Date Added: 2024-06-11T18:22:01.457632
License: Public Domain

PAPPAS, Bankruptcy Judge,
concurring.
I can join in the result of the majority’s decision because this Panel is bound to follow its prior decision in Gaughan v. Smith (In re Smith), 342 B.R. 801 (9th Cir. BAP 2006). See Palm v. Klapperman (In re Cady), 266 B.R. 172, 181 n. 8 (9th Cir. BAP 2001), aff'd, 315 F.3d 1121 (9th Cir.2003); Salomon N.A. v. Knupfer (In re Wind N’ Wave), 328 B.R. 176, 181 (9th Cir. BAP 2005). In Smith, the Panel decided that the very same temporal limitation on the duration of the Arizona homestead exemption at issue here was effective in bankruptcy cases. In coming to that conclusion, Smith relied upon the Ninth Circuit’s interpretation of a very similar provision in the California homestead statute in England v. Golden (In re Golden), 789 F.2d 698 (9th Cir.1986). And despite the bankruptcy court’s thoughtful decision here, I disagree that Owen v. Owen, 500 U.S. 305, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991), overruled or otherwise provides a basis to avoid the conclusion reached by the Ninth Circuit in Golden. Thus, I think we are bound to follow Golden and Smith and to reverse the decision of the bankruptcy court.
But while I respect binding precedent, for the same reasons expressed by Judge Klein in his concurrence in Smith, 342 B.R. at 809, I am troubled that our decision in Smith, and now our conclusion here, is constructed upon a flawed foundation. I think Golden’s premise — that state law restrictions on exemptions that arise from facts occurring after the filing of a bankruptcy case are effective — deserves reconsideration. Instead, I adhere to the notion that exemption rights should be determined, finally, based upon the facts existing on the date the bankruptcy petition is filed. To conclude otherwise means *209the debtor’s rights in a bankruptcy case are necessarily in limbo until that case concludes. This in turn may motivate a trustee to postpone closing the case as long as there is any prospect that the debtor’s circumstances may change.
Here, the debtors sold their homestead prior to bankruptcy, and there is no dispute that on the date they commenced their bankruptcy case, the sale proceeds were exempt. But our holding in Smith nonetheless required the debtors to purchase a new home within the statutory time in order to maintain the exempt status of the proceeds — something they presumably have failed to do. And the trustee kept the debtor’s bankruptcy case open to ensure that they did so. It seems inconsistent with the debtor’s entitlement to a fresh start that, as here, the debtors must wait over a year after filing for bankruptcy relief to know the extent of their exempt property.
Would Golden and Smith prohibit the debtors from using the house sale proceeds before expiration of the 18-month window to, say, pay nondischargeable debts, like taxes? And what about a debt- or who desires to sell an exempt homestead shortly after the bankruptcy case is filed to use the funds to pay newly incurred obligations, like medical bills? These are two hard questions raised, but not answered, by Golden and Smith8
All sorts of state law exemptions are subject to all sorts of conditions which must be satisfied based upon the facts as they exist when the exemption is claimed, not later. For example, under Arizona law, tools used in a debtor’s trade or profession are exempt. A.R.S. § 33-1130 (West 2006) (providing an exemption for “tools and equipment of a debtor used in a commercial activity, trade, business or profession ”) (emphasis added). Under Golden and Smith, if six, 12 or 24 months after filing for bankruptcy, a debtor changes occupations, can the trustee then seize the formerly exempt tools for liquidation?
Congress has allowed the states to limit the exemptions available in bankruptcy to their residents in § 522(b)(1). But in § 522(b)(2)(A), the Code requires that the state law “applicable on the date of the filing of the petition” control in determining what exemptions a debtor may claim in a bankruptcy case. To me, while the former provision allows states to dictate what property is exempt, the latter provision instructs that the extent of exempt property is to be determined with reference to the facts as they exist on the date of the bankruptcy filing, not some later, unspecified date. That such a determination may give bankruptcy debtors additional rights as compared to those not in bankruptcy is nothing new given the remedial purposes of the bankruptcy laws. Bankruptcy is all *210about the modification of creditors’ state law rights.
And so I concur, but out of respect for precedent only.

. Under the Arizona homestead law, A.R.S. § 33-1101(C), it seems clear that a debtor is entitled to use the proceeds from the sale of an exempt homestead for any purpose, and not just for reinvestment in another homestead, during the 18-month safe harbor period. Assuming a debtor has such an unfettered right on bankruptcy day, could the trustee defeat a debtor's request to have the funds abandoned from the bankruptcy estate? 11 U.S.C. § 554(b) (authorizing bankruptcy court to order the trustee to abandon, upon request of an interested party, any property that “is of inconsequential value and benefit to the [bankruptcy] estate”). If the trustee can frustrate the debtor's freedom to spend these funds, requiring that they be held hostage to reinvestment only in a homestead to preserve the estate’s “contingent, reversionary interest in the sale proceeds”, see Smith, 342 B.R. at 808, Arizona debtors in bankruptcy are actually worse off than their non-bankruptcy counterparts.