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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