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Exemption Planning
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Pat, et al
I get your point(s) but let me put a finer point on my question.
If the Debtor sells her residence and then files a CH7 claiming $175,000 homestead on the sale proceeds is the trustee going to wait six months after the sale date to see if the homestead is reinvested in a dwelling or resident? I would think so.
I up against a very persuasive realtor who wants the debtor to sell the property and then file bankruptcy. I am concerned about protecting the homestead equity.
Best regards
Larry Webb
State Bar of California 229344
Central District California
"A Debt Relief Agency"
Larry@webbklaw. com
Law Offices of Larry Webb
484 Mobil Ste 43
Camarillo Ca 93010
P 805.987.1400
F 805.987.2866
C 805.750.2150
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Larry Larry, Major Major, et al. al.,
This raises an interesting point. As Larry the First points out, the court hangs it hat on the principle that it is the entire state law applicable on the filing date that is determinative of whether an exemption applies. The statutory exemption contained in Article 5 of Ch 4 of Div 2 of Title 9 of the CCP also includes 704.800, which is part of the entire state law, says If no bid is received at a sale of a homestead pursuant to a court order for sale that exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property, including but not limited to any attachment or judgment lien, the homestead shall not be sold and shall be released and is not thereafter subject to a court order for sale upon subsequent application by the same judgment creditor for a period of one year.
It seems to me that this should be read to mean that a BK trustee cannot sell a house that will have no net proceeds in excess of the homestead exemption.
If you have any questions or concerns, please contact me.
Pat
Patrick T. Green
Attorney at Law
Fitzgerald & Green
1010 E. Union St. Ste. 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
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I hate realtors.
Ch7 client has large mortgages and a business that just stopped producing
income about a year ago. Notice of default was recorded on June 4, 2012.
They have no hope to cure or make payments if they could cure. They do have
some equity, about 170k which they can exempt with CCP 704.730. (a)(3);
one joint debtor is 68. Their income is well below the means test
presumption without considering the mortgage obligations; so they dont need
the mortgage on the means test to overcome the presumption. They have been
told by a very convincing realtor that they need to sell before the
bankruptcy or the sale will be held up by the trustee and they will not get
a good price. The realtor also told them they have six months to reinvest
the homestead exemption, which is technically correct under 704.720(b).
I have just read Wolfe v Jacobson, BAP 10-1036 dated April 23, 2012. In
Wolfe the debtor sold property after she filed and claimed the homestead.
The Wolfe court cited the snapshot rule as follows:
Under the so-called snapshot rule, bankruptcy exemptions are fixed at the
time of the bankruptcy petition. See White v. Stump, 266 U.S. 310, 313
(1924). Those exemptions must be determined in accordance with the state law
it is the
entire state law applicable on the filing date that is determinative of
whether an exemption applies. In re Zibman, 268 F.3d 298, 304 (5th Cir.
2001) (emphasis in original). In this case, the entire state law includes a
reinvestment requirement for the debtors share of the homestead sale
proceeds. Cal. Civ. Proc. Code 704.720(b).
The Wolfe debtor did not reinvest within six months and the exempt sale
proceeds became nonexempt.
The Wolfe court also analyzed the scope of the homestead exemption in terms
of the exact scope of the rights it confers at the time of the bankruptcy
petition. According to the Wolfe court;
In re Golden, 789 F.2d 698 (9th Cir. 1986), the debtor had filed for
bankruptcy after selling his California homestead and had then let the
reinvestment period lapse without investing his exempt share of the
proceeds. (cite omitted) . The debtor argued the proceeds were nonetheless
exempt because they had been exempt when he filed for bankruptcy. (cite
omitted) . We rejected that argument and held the debtor had received the
proceeds subject to the reinvestment condition.. Those proceeds could thus
lose their exempt status once the reinvestment period lapsed.
My question regards the homestead exemption and the timing of the sale of
the residence. My reading of the code and cases suggests that if a Debtor
files bankruptcy, claims the exemption, receives a discharge and then sells
property; the debtor keeps the exemption because the debts have been
discharged before the sale. BUT if the debtor sells the property before
the bankruptcy he may lose the exemption if he doesnt reinvest with the
statutory six months. I also anticipate a battle with the trustee over the
sale proceeds if they sell before they file.
Does anyone see this differently, or have I missed anything?
Best Regards
Larry Webb
Law Office of Larry Webb
484 Mobil Ste 43
Camarillo, Ca 93010
805-987-1400
Email Webblaw@Earthlink.net
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I would do it. I actually did that on several occasions under the old code
- sold a fully paid car and bought an interest in residential real estate
occupied by the debtor as a homestead.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
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Dennis:
While I agree the guy was a hog and thereby gave the BAP a desire to knock
him out, I think you state the case too broadly. This case turns on
fraudulent transfer prohibitions in CA law. The CA Supremes following a
couple of our appellate courts, have ruled that divorces agreements are not
insulated from our fraudulent transfer rules (UFTA) (Mejia v. Reed, 2003).
The BAP applied CA law via 744(b) as a voidable transfer under CA law.
Specifically, 544(b)(1) allows the trustee to avoid the transfer of an
interest that is "voidable under applicable law" and the applicable law is
UFTA. In both the Beverly case and in Mejia, the CA case, couples in a
divorce made a sweetheart deal to divide the marital property so that the
debtor spouse got all the exempt property.
Beyond the specific facts of the Beverly case as applied to MSAs in divorce,
I think we should certainly note the larger principle that is stated in the
bolded part of the decision that follows "The bankruptcy planning dispute
presented in these related appeals requires us to transit waters made
turbulent by cross-currents of exemptions, fraudulent transfer, denial of
discharge, and divorce. We publish to dispel the myth that the toleration of
bankruptcy planning for some purposes insulates such planning from all
adverse consequences-it does not. In matters of bankruptcy and insolvency
planning, supposed safe harbors from one danger are exposed to dangers from
other quarters and may, in any event, be too small to shelter large capital
transactions." I take this to mean that a creditor can hang their hat on
other areas of law that might make a transfer voidable, but the only one we
know of at this point is UFTA. Under UFTA, you must have a transfer to
another person. Under Barry's facts there will be no transfer so UFTA
cannot be brought into play.
Pat
Patrick T. Green, Esq.
Fitzgerald & Green
Attorneys at Law
1010 E. Union Street
Suite 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
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Barry:
The new law did not change the exemption planning
scheme, but In re Beverly has. (374 B.R. 221, 2007)
In the Beverly case, the BAP adopted the 10th Circuit
rule that your client cannot be a hog.
Beverly is on appeal to the 9th Cir.
dennis
> Under the old law I knew it was my job as an
> attorney to exemption plan.
> That is to maximize my client's use of their
> exemptions. Has the new
> law changed that. My client has a significant asset
> that is paid for
> and worth approximately $65,000. Any problem
> selling that asset and
> having him buy a mobile home for cash and then using
> the homestead
> exemption?
>
>
>
> Barry E. Borowitz
> Borowitz, Lozano & Clark, LLP
> 100 N. Barranca Avenue, Suite 250
> West Covina, CA 91791
> Office: (626) 332-8600
> Fax: (626) 332-8644
>
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Under the old law I knew it was my job as an attorney to exemption plan.
That is to maximize my client's use of their exemptions. Has the new
law changed that. My client has a significant asset that is paid for
and worth approximately $65,000. Any problem selling that asset and
having him buy a mobile home for cash and then using the homestead
exemption?
Barry E. Borowitz
Borowitz, Lozano & Clark, LLP
100 N. Barranca Avenue, Suite 250
West Covina, CA 91791
Office: (626) 332-8600
Fax: (626) 332-8644
Privileged/Confidential Information may be contained in this message. If
you are not the addressee indicated in this message (or responsible for
delivery of the message to such person), you may not copy or deliver
this message to anyone. In such case, you should destroy this message
and kindly notify the sender by reply email. Please advise immediately
if you or your employer does not consent to Internet email for messages
of this kind. Opinions, conclusions and other information in this
message that do not relate to the official business of my firm shall be
understood as neither given nor endorsed by it.
IRS Circular 230 Disclosure: To ensure compliance with Treasury
Department Regulations, we advise you that, unless otherwise expressly
indicated, any federal tax advice contained in this communication was
not intended or written to be used, and cannot be used, for the purpose
of (i) avoiding tax-related penalties under the Internal Revenue Code or
applicable state or local tax law provisions or (ii) promoting,
marketing or recommending to another party any tax-related matter
addressed herein.
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