Document Sample
					                                SELECTED CHAPTER 7 ISSUES

                                     Judge Margaret A. Mahoney

This paper deals with various issues that have arisen in regard to what happens to the debtor=s
personal property in a chapter 7 case. What must the debtor do to insure that her property is
safely retained if that is what is desired, or, legally properly surrendered to a creditor, if that is
what is desired? The case law as to what to do and how to do it is varied. Every debtor and
creditor attorney should know the law.


        A.      Before BAPCPA - LAW

         Before BAPCPA, chapter 7 debtors had the three options of surrender, redemption and
reaffirmation in all jurisdictions under Bankruptcy Code section 521(2). In many jurisdictions,
debtors also had the right to a “ride-through” option. Five circuits allowed “the fourth option.”
Price v. Del. State Police Fed. Credit Union (In re Price), 370 F.3d 362 (3rd Cir. 2004);
McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 68 (9th Cir. 1998); Capital
Commc=ns Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43 (2nd Cir. 1997); Home
Owners Funding Corp. Of Am. V Belanger (In re Belanger), 962 F.2d 345 (4th Cir. 1992); Lowry
Fed. Credit Union v. West, 882 F.2d 1543 (10th Cir. 1989). In a ride-through, a debtor has the
ability to remain current in all respects on the secured debt and not elect any of the other three
options. The ride-through allows the debtor to discharge any personal liability while preventing
any right of the creditor to exercise state law remedies to take the property.

        B.      After BAPCPA - LAW

       The Bankruptcy Code contains several sections that deal with a debtor=s retention or
surrender of property after a bankruptcy filing.

        Section 521(a)(2)(A) provides

        [W]ithin thirty days after the date of the filing of a petition under chapter 7 of this
        title or on or before the date of the meeting of creditors, whichever is earlier, or
        within such additional time as the court, for cause, within such period fixes, the
        debtor shall file with the clerk a statement of his intention with respect to the
        retention or surrender of such property and, if applicable, specifying that such
        property is claimed as exempt, that the debtor intends to redeem such property, or
        that the debtor intends to reaffirm debts secured by such property.

        Section 521(a)(2)(B) provides

        [W]ithin 30 days after the first date set for the meeting of creditors under section
        341(a), or within such additional time as the court, for cause, within such 30-day
        period fixes, the debtor shall perform his intention with respect to such property,
        as specified by subparagraph (A) of this paragraph.
       Section 521(a)(2)(C)(6) provides

       [I]n a case under chapter 7 of this title in which the debtor is an individual, [a
       debtor may] not retain possession of personal property as to which a creditor has
       an allowed claim for the purchase price secured in whole or in part by an interest
       in such personal property unless the debtor, not later than 45 days after the first
       meeting of creditors under section 341(a) either–

       (A) enters into an agreement with the creditor pursuant to section 524(c) with
       respect to the claim secured by such property; or

       (B) redeems such property from the security interest pursuant to section 722.

       Section 506(a)(2) provides

       If the debtor is an individual in a case under chapter 7 or 13, such value with
       respect to personal property securing an allowed claim shall be determined based
       on the replacement value of such property as of the date of the filing of the
       petition without deduction for costs of sale or marketing. With respect to property
       acquired for personal, family, or household purposes, replacement value shall
       mean the price a retail merchant would charge for property of that kind
       considering the age and condition of the property at the time value is determined.

       Section 722 provides

       An individual debtor may, whether or not the debtor has waived the right to
       redeem under this section, redeem tangible personal property intended primarily
       for personal, family, or household use, from a lien securing a dischargeable
       consumer debt, if such property is exempted under section 522 of this title or has
       been abandoned under section 554 of this title, by paying the holder of such lien
       the amount of the allowed secured claim of such holder that is secured by such
       lien in full at the time of redemption.

       Section 522(p)(1) provides

       [A]s a result of electing . . .to exempt property under State or local law, a debtor
       may not exempt any amount of interest that was acquired by the debtor during the
       1215-day period preceding the date of the filing of the petition that exceeds in the
       aggregate [$125,000] in value in-real or personal property that the debtor or
       dependent of the debtor claims as a homestead.

       C.      Timing of Election

       A debtor must file his statement of intention within 30 days after the filing of the case or
on or before the first meeting of creditors, whichever date is earlier.

       D.      Timing of Performance of Election

         Noland v. HSBC Auto Finance (In re Baine), 393 B.R. 561 (Bankr. S.D. Ohio 2008).
Debtors failed to perform their timely filed intention to surrender their vehicle. The trustee did
not file a motion pursuant to section 362(h)(2) stating that the vehicle had consequential value
and seeking adequate protection of the creditor until the trustee could deal with the property.
However, HSBC had failed to note its lien on the vehicle=s certificate of title and the debtor and
trustee argued that HSBC was thus unsecured and the stay provisions were not applicable. The
Court held that under state law the creditor was secured as to the debtor and the trustee’s failure
to seek to use section 362(h)(2) took away the trustee=s right to raise the issue. “Because the
operation of § 362(h) is functionally equivalent to an abandonment, it has the effect of divesting
the estate of all its interest in the property.” Id. at 568.

         Main Street Bank v. Hull, 2008 WL 783772 (E.D. Mich. 2008). Debtor filed a statement
of intention indicating that she intended to surrender real estate to the Bank. The debtor did not
move from the home after discharge. Bank asserted that the debtor had to pay for her use of the
home until she vacated the premises. The Bank asserted that the surrender provision was a
substantive one, not just procedural. The surrender required under section 521 affected a
debtor’s substantive state law rights associated with the real estate. The District Court ruled that
“surrender” under the Bankruptcy Code did not result in “’surrender’ [of] any substantive rights
provided by state law. . . Rather, [creditors’]. . . remedy in the bankruptcy action is to request
relief from the automatic stay and then pursue their remedies under state law.” Id. at *3.

       E.      Ridethroughs post- BAPCPA

        Christopher M. Hogan, Will the Ride-Through Ride Again?, 108 Colum. L. Rev. 882
(May 2008). The note asserts that the ride-through option should still be available due to the
lack of clear change from BAPCPA.

        In re Wilson, 372 B.R. 816 (Bankr. D.S.C. 2007). Debtor had a right to retain her real
property without reaffirming or redeeming as long as debtor complied with all other contractual
obligations. Accord, In re Waller, 394 B.R. 111 (Bankr. D.S.C. 2008).

       F.      Result of no reaffirmation or redemption

        In re Hue Huu Tran, 2007 WL 4210559 (Bankr. E.D. Va. 2007). A debtor neither
redeemed or reaffirmed an auto debt to Suntrust Bank in a timely manner. The debtor was, at all
times, current on all of his contractual obligations to Suntrust. The Court held that Suntrust had
to be granted relief from stay in the absence of a redemption or reaffirmation. The Court did not
recognize any ride-through option. The Court expressly stated that it made “no ruling as to
whether SunTrust is entitled under the terms of its contract and applicable Virginia law to
repossess a vehicle-when payments are current, only four payments remain due, and the value of
the collateral comfortably exceeds the balance due-solely because one of the co-owners filed a
bankruptcy petition.” Id. at *3.

        Dumont v. Ford Motor Credit Co. (In re Dumont), 282 B.R. 481 (9th Cir. B.A.P. 2008).
Debtor filed contempt motion against Ford when Ford repossessed her car after discharge when
she proposed to allow the debt to ride-through her case and was current on her debt. The Court
held that the ride-through option was eliminated by BAPCPA for personal property.


       A.      What is required

        In re DeSantis, 395 B.R. 162 (Bankr. M.D. Fla. 2008). Debtors’ counsel refused to
represent them in regard to their reaffirmation agreements while continuing to represent them in
their case. Credit union moved for sanctions against counsel because the failure to represent the
debtors unduly increased the cost of negotiating the reaffirmation agreement. The Court
sanctioned debtors’ counsel. “Attorneys representing individual debtors in consumer cases . .
have certain essential duties they must perform. They must . . . advise and assist their clients in
complying with their responsibilities assigned by Section 521 of the Bankruptcy Code, including
helping their clients decide whether to surrender collateral or instead to reaffirm or to redeem
secured debts. This is one of a debtor=s attorney=s primary and essential responsibilities.” Id. at

        In re Calabrese, 353 B.R. 925 (Bankr. M.D. Fla. 2006). If debtor’s counsel certifies that
a reaffirmation agreement poses no undue hardship, then the Court is not required to review the
reaffirmation agreement.

        In re Merritt, 266 B.R. 637 (Bankr. W.D. Tex. 2007). If the creditor did not sign a
reaffirmation agreement until after the debtor=s discharge, that fact does not invalidate the
reaffirmation agreement. Only the debtor need sign the agreement before the entry of the
discharge. Section 521 requires the debtor to “enter into an agreement with the creditor” within
45 days of the 341(a) meeting. The reaffirmation agreement may be filed and/or approved after
discharge. A reaffirmation agreement is more like a waiver than an agreement. See In re
Herrera, 380 B.R. 446 (Bankr. W.D. Tex 2007), a pre-BAPCPA case, that held that a
reaffirmation agreement signed by the debtor postdischarge was unenforceable and the discharge
could not be set aside to validate it.

        In re Wilhelm, 369 B.R. 882 (Bankr. M.D.N.C. 2007). The discharge cannot be vacated
for approval of a reaffirmation agreement. Contra, Merritt, supra. The requirements for
reaffirmation agreements should be strictly construed as reaffirmations “are contrary to one of
the primary goals of the Bankruptcy Code: to provide a debtor with a fresh start.” Id. at p. 883.

       In re Engles, 384 B.R. 593 (Bankr. N.D. Okla. 2008). Reaffirmation agreement executed
predischarge but not filed until after discharge is unenforceable.

        In re Keck, 2008 WL 2952156 (Bankr. E.D. Va. 2008). Debtor=s counsel did not fill out
Part C of the reaffirmation agreement of a debtor. He signed Part C but did not check the box
indicating whether the debtor could make the payments or not. Because the attorney did not
completely fill out Part C as required by section 524(k), the reaffirmation agreement could not be

        In re Porter, — B.R. — ,2008 WL 5396327 (Bankr. D. N.H. 2008). Attorneys fees of
$350 charged by lender=s counsel for review of file, decision whether to seek reaffirmation and
preparation of reaffirmation was unreasonable. The work was ministerial and did not require an
attorney. The reaffirmation approval was denied with leave to refile it without a fee.

       B.      Result of Court=s denial

       Coastal Federal Credit Union v. Hardiman (In re Hardiman), — B.R. — ,2008 WL
4899529 (E.D.N.C. 2008). The ride-through option remains in the limited situation of a debtor
entering into a reaffirmation agreement and the Court denying approval.

        In re Milby, 389 B.R. 466 (Bankr. W.D. Va. 2008). The debtor filed a reaffirmation
agreement that, on its face, indicated the debtor could not pay the debt without undue hardship
and, therefore, the court had to deny approval. The debtor also sought a ruling by the Court
declaring that, if the reaffirmation agreements were not approved, the debtor had performed his
obligations under sections 521 and 362(h). With that declaration, as long as the debtor stayed
current on his auto loans, the creditors could not repossess the vehicles and the debtor would also
have discharged any deficiency claims. The Court denied approval of the reaffirmation
agreements but declined, on subject matter jurisdiction grounds, from declaring that the debtor
had complied with sections 521 and 362(h). “The Debtor offered no evidence which would
support his concern and there is no evidence that the Bank intends to exercise its contractual
rights post-discharge if the reaffirmation agreements are not approved.” Id. at 468. “It is
incumbent upon the debtor to prove good faith in complying with the statutory provisions which
would prohibit a secured creditor from exercising its contractual rights post-discharge. To hold
otherwise would permit all debtors to go through the procedural exercise of compliance when
they know they have no basis for persuading the court to overrule a presumption of undue
hardship.” Id. at 469.

        In re Baker, 390 B.R. 524 (Bankr. D. Del. 2008). If debtors’ reaffirmation agreement is
not approved, but the debtors are not in default on their loan, the ride-through exception to
section 521 is still viable in the 1st Circuit. Section 521 allowance of operation of ipso facto
clauses is only applicable if the debtor fails to enter into a reaffirmation agreement. It is not
applicable if the Court disapproves the agreement.

        In re Moustafi, 371 B.R. 434 (Bankr. D. Ariz. 2007). A pro se debtor filed a proposed
reaffirmation agreement for her car in a timely fashion. The Court denied approval of the
agreement. The debtor was, at all times, current in her payments on the vehicle. The Court held
that the “ride-through” option was no longer available to the debtor in the Ninth Circuit, but, the
consequences of sections 362(h)(1) and 521(d)–lifting the automatic stay and making ipso facto
default clauses enforceable–are only caused by a debtor=s failure to timely file a statement of
intention and/or to timely enter into a reaffirmation agreement, ‘not by the court=s disapproval of
the agreement or by its determination that the agreement is unenforceable.’” Id. at 439 (quoting
In re Husain, 364 B.R. 211, 218-19 (Bankr. E.D.Va. 2007).

       The court disagrees with the ruling in In re Rice, 2007 WL 781893 (Bankr. E.D. Pa.
2007); In re Rowe, 342 B.R. 341 (Bankr. D. Kan. 2006) that hold that the ride-through option is
eliminated in all circumstances.

        In re Waller, 394 B.R. 111 (Bankr. D.S.C. 2008). As to real property, section 521(a)(2)
does not apply and debtors could exercise the ride-through option if the debtors remained current
on the obligation. Accord, In re Wilson, 372 B.R. 816 (Bankr. D.S.C. 2007).

III.    Surrender

        A.      What is effect

         Pratt v. General Motors Acceptance Corp. (In re Pratt), 462 F.3d 14 (1st Cir. 2006). The
chapter 7 debtors sued GMAC for violating the discharge injunction by refusing to release its
secured lien or repossess the vehicle that the debtors had surrendered in their case. The Circuit
Court held that a “surrender” of a vehicle under section 521 did not require that the lender
repossess the car or release its lien. Section 521 “does not . . . define the term ‘surrender’”. Id.
at 18. The debtors argued that GMAC was in essence coercing them to pay the debt by refusing
the take either step. Without the lien release, the debtors could not junk the car or sell it, so it sat
in their yard. The Court said that surrender means a debtor must make the property surrendered
available to the creditor and the creditor could choose to repossess the car or not. This was true
even if the refusal of GMAC to repossess the car or release the lien “had the practical effect of
eliminating the Pratts’ ‘surrender’ option under § 521(a)(2).” Id. at 20.

        B.      What is debtor required to do

        In re Carter, 390 B.R. 648 (Bankr. W.D. Mo. 2008). In the context of confirmation of a
chapter 13 plan, a debtor stated he was surrendering real property in full satisfaction of the
mortgage claims on the property. There were two mortgage debts, junior and senior. The junior
lien holder asserted that the debtor had not surrendered the property as required. The court held
that surrender “does not require a debtor to transfer title by executing and delivering a deed.”
390 B.R. at 652. The debtor had not opposed relief from stay. The senior lender had foreclosed
upon the property and the junior lien holder had been free to participate in the foreclosure.

        In re Borowiec, 396 B.R. 598 (Bankr. W.D. N.Y. 2008). Debtor wrote a check to pay
property taxes the day he filed bankruptcy. The check was written and presented to the County
before bankruptcy. The check was cashed by the County after the bankruptcy filing. The trustee
asserted that the debtor=s duty of surrender under § 521(a)(4) required him to turn over the
money. The court held that the debtor did not have the funds in his possession so he could not
turn them over, but the trustee was awarded a judgment for the amount of the check against the

        Internal Revenue Service v. White (In re White), 487 F.3d 199 (4th Cir. 2007). Debtors
proposed to surrender personal property to the IRS as part of their chapter 13 plan and deduct the
value of the personal property from the IRS secured tax claim. The items to be surrendered were
jewelry, clothes, stove and refrigerator. The IRS objected saying that such a Asurrender@ was not
valid under § 1325(a)(5). The IRS is prohibited from obtaining such property from debtors
except through judicial action. Therefore the debtors were not “relinquish[ing] . . . all rights in
property, including the possessory right.” 487 F.3d at 205. They intended to keep the property
until forced to return it.

IV.     Redemptions

        A.      What is required

       In re Miller, 394 B.R. 114 (Bankr. D.S.C. 2008). Court refused to allow redemption at
values debtor proposed even though the redemption was unopposed by the creditor because the
values proposed were without basis. Debtor sought to redeem a wedding ring for $30 and an
engagement ring for $200.

        In re Gonzalez, 376 B.R. 348 (Bankr. S.D. Fla. 2007). A debtor purchased personal
property that he gave as gifts to others. The gifts had security interests that he was obligated to
pay. He moved to redeem the goods. The Court held that a debtor can redeem only goods that
are “tangible personal property [that he intends] . . .primarily for personal, family, or household
use.” 11 U.S.C. ' 722. The debtor gave the goods to people not living with him. Therefore, he
is not entitled to redeem the items.

        In re Morales, 387 B.R. 36 (Bankr. C.D. Cal. 2008). Pre-BAPCPA, Ninth Circuit cases
set a wholesale value standard for section 506 valuations and courts did valuations as of the date
of the valuation. Under BAPCPA, the issue is more complicated. This case discusses all of the
cases to date and explains all of the various rationales. The Court concludes that it will value
personal property as of the petition date and use the Kelley Blue Book or N.A.D.A. Guide retail
value and decrease it by evidence presented of repair costs based upon the condition of the

        In re Parker, 363 B.R. 621 (Bankr. M.D. Fla. 2007). Debtors timely filed a statement of
intentions indicating that they intended to redeem their vehicle. The debtors did not finish their
negotiations with a redemption lender, did not make payments on the vehicle or determine
whether the lender would accept their valuation for the car. On the 47th day after the meeting of
creditors, the lender repossessed the car. The Court held that the debtors had lost their right to
redeem because they did not actually redeem the vehicle within the statutory period of 45 days.
Therefore, the stay lifted and the lender was free to repossess the vehicle.

        In re Kidwell, 2007 WL 2934866 (Bankr. E.D. Tenn. 2007). Debtor stated in his
statement of intentions that he intended to reaffirm the debt to his car lender. He filed a motion
to redeem within the timely period for declaring one=s intention. The Court held that the motion
to redeem amended the debtor=s statement of intention.

       B.      Valuation Issues

       In re Ortiz, 2007 WL 1176019 (Bankr. S.D. Fla. 2007). The debtor moved to redeem her
vehicle from Ford Motor Credit. She claimed that the value of the vehicle for redemption
purposes was the market value (wholesale value) of the car. Ford Motor Credit claimed that it
was the retail value of the car.

        The court discussed alternative ways to arrive at a value. First, the Court could consider
the “as is” value of the car with all of its defects. However, the Court said this is hardly the
manner in which a retailer would sell a car. Therefore, the Court considered an approach that
“take[s] the retail value of an identical make and model car [and] then deduct from it the retail
value of the repairs required to bring the car up to retail standard.” Id. at *3. The Court called
this the “retail standard” test.

        In re Kowalski, 2007 WL 682438 (Bankr. N.D. Ohio 2007). The debtors timely moved to
redeem their car in their chapter 7 case. They had converted from chapter 13. Household Auto
Finance asserted that the car=s value for redemption purposes was the value set in the chapter 13
case less payments pursuant to section 348(f)(1). The debtors valued the car at a liquidation
value. The Court held that the case law and statute are clear. The car must be valued using the
allowed secured claim from the chapter 13 case less payments. This holding follows other like
holdings in In re Davis, 300 B.R. 898 (Bankr. N.D. Ill. 2003); In re Dean, 281 B.R. 912 (Bankr.
W.D. Tenn. 2002); In re Rodgers, 273 B.R. 186 (Bankr. C.D. Ill. 2002); In re Archie, 240 B.R.
425 (Bankr. S.D. Ala. 1999).

       In re Kidwell, 2007 WL 2934866 (Bankr. E.D. Tenn. 2007). The Court held that the
Kelley Blue Book private party valuation was the correct one to use based upon the evidence.
The court also allowed the valuation to be as of the date of the hearing because that value is what
both the debtor and creditor’s appraisers used as the valuation date.


       A.      The proper exemption

        In re Rogers, 513 F.3d 212 (5th Cir. 2008). A Texas debtor inherited real property in
1994. She was married and she and her husband purchased and lived in a homestead on a
different piece of real estate. In 2004, the debtor and her husband divorced and she moved to the
inherited property and commenced living there. In 2005, the debtor filed bankruptcy. The
question asked was whether the inherited property qualified as a homestead not subject to the
$125,000 cap or not because it was not the debtor=s homestead for over 1215 days before
bankruptcy but was owned by her for more than 1215 days before bankruptcy.

        The bankruptcy court defined the word “interest” in 522(p)(1) “to mean an unquantifiable
‘property interest,’ which presumably refers to title or fee ownership” as opposed to the District
Court definition of “interest” as “’some legal or equitable interest that can be quantified by a
monetary figure,’ which presumably refers to equity.” Id. at 217. The Circuit Court held that it
did not have to decide which definition was correct. It held that “[a] homestead interest is not
the equivalent of title or equity.” Id. at 222. The Circuit Court held that a homestead exemption
is valueless. It does not establish a vested economic interest in property. It just protects the
rights that a debtor may have. The word “interest” in section 522(p)(1) applies to the vested
economic interests that a debtor has in property–title and equity. Therefore, section 522(p)(1)
does not apply to this case. The debtor did not acquire title to or equity in the inherited property
during the 1215-day period and thus may claim the Texas unlimited homestead exemption.

        The Court also stated in dicta that it concluded the bankruptcy court definition of
“interest” was the correct one. “What must be acquired during the statutory period is vested
economic interests in the homestead property.” Id. at 225.

       In re Lyons, 355 B.R. 387 (Bankr. D. Mass. 2006). Same result as Rogers.

       Venn v. Reinhard (In re Reinhard), 377 B.R. 315 (Bankr. N.D. Fla. 2007). Same result as
Rogers and quoted liberally in Rogers. Reinhard stated that “homestead is simply a status,

constitutionally defined, which exempts certain property form execution and limits its
alienability. It is not a property interest. When a Florida resident=s property acquires homestead
status, the owner does not acquire any of the rights traditionally associated with property
interests; the right to possession, the right to use, the right to transfer–the owner already holds
whatever of these he has. Accordingly, homestead status in Florida is not properly
conceptualized as a stick in the bundle; rather, it is a protective safe in which the bundle is put.”
Id. at 319.

        In re Greene, 346 B.R. 835 (Bankr. D. Nev. 2006). Result opposed to Rogers. The
Greene court held that a “homestead [exemption] . . . is a ‘property interest’ that lies dormant and
inactive until it is acquired by the debtor.” Id. at 842.

         In re Presto, 376 B.R. 554 (Bankr. S.D. Tex. 2007). Adopts Rogers Bankruptcy Court
opinion’s view of “interest” as capable of being quantified by a monetary figure. Id. at p. 577.
The court held that a debtor=s exchange in a divorce settlement of his 2 community property
interest in one house for his wife’s 2 community property interest in another house “had a
definite, ascertainable monetary value and, therefore, was unlike a mere homestead designation.”
 Id. at p. 577. The value was value acquired within the 1215-day period and therefore subject to
the cap.

        In re Rasmussen, 349 B.R 747 (Bankr. M.D. Fla. 2006). Section 522(p)(1) term “amount
of interest acquired” during the 1215-day period does not include equity appreciation.

       In re Sainlar, 344 B.R. 669 (Bankr. M.D. Fla. 2006). Same result as Rasmussen.

       In re Anderson, 374 B.R. 848 (Bankr. D. Kan. 2007). Same result as Rasmussen.

        In re Blair, 334 B.R. 374 (Bankr. N.D. Tex. 2005). Same result as Rasmussen. Pay down
of mortgage during 1215-day period prefiling did not constitute an “amount of interest acquired”
subject to the homestead cap.

       In re Burns, 2008 WL 4542894 (Bankr. M.D. Fla. 2008). Same as Rasmussen.

        In re Aroesty, 385 B.R. 1 (1st Cir. B.A.P. 2008). Debtor had a beneficial interest in a trust
for more than 10 years before her bankruptcy filing. She was the sole beneficiary of the trust.
She acquired title to the property within the 1215-day period before her filing. The court held
that the debtor acquired homestead exemption rights within the statutory period and was limited
to a $125,000 exemption.

       Khan v. Bankowski (In re Khan), 375 B.R. 5 (1st Cir. B.A.P. 2007). Debtor and brother
deeded property to themselves as joint tenants within the 1215-day period before bankruptcy.
The brothers had previously held the property in a trust of which they were the only
beneficiaries. The BAP held that without evidence of the terms of the trust, not offered at trial,
the debtor could not prove he did not acquire his interest in the property within 1215 days before

      In re Martinez, 392 B.R. 530 (Bankr. E.D. N.Y. 2008). A debtor claimed a homestead
exemption in the property in which she resided. The home was still in the name of her deceased

father and needed to be probated. The court held that the debtor could properly claim a
homestead exemption in the property. “New York state and bankruptcy courts have found
ownership in real property vests in a distributee immediately upon an intestate death by operation
of statutory authority [under New York law].” Id. at 532.

        In re Lyons, 355 B.R. 387 (Bankr. D. Mass. 2006). Section 522(p) did not apply to a
debtor who owned property prior to 1215 days before filing his bankruptcy petition, but recorded
his homestead declaration within 1215 days of filing. The court held that the property interest
was acquired prior to 1215 days and its classification as a homestead was acquired within 1215
days, so section 522 was not applicable.

        In re Wilson, 393 B.R. 778 (Bankr. S.D. Fla. 2008). Debtor claimed as his homestead
property that he used in part for business purposes. He operated Club Purple Ice in the building
and asserted that he lived in an apartment on the second floor of the building. The court held that
he could exempt a portion of the premises as his homestead under Florida law. However, in
Florida, when the property cannot be divided between homestead and nonhomestead property,
the proper result is to sell the property and apportion the proceeds between the homestead and
nonhomestead portions. In re Englander, 95 F.3d 1028 (11th Cir. 1996).

       In re Kleinfeldt, 2007 WL 2138748 (Bankr. D. Vt. 2007). This case explains in detail
how to determine a debtor’s homestead interest in a piece of property of which she is a joint
tenant with 2 nondebtors and the parties are jointly and severally liable on the mortgage on the

        Stornawaye Financial Corp. v. Hill (In re Hill), 387 B.R. 339 (1st Cir. B.A.P. 2008). The
debtor conveyed his interest in his homestead to his wife for $1 less than one year before filing
bankruptcy. He had a debt from a personal guarantee for the debt of his former company that the
creditor wanted to enforce. After the guarantee creditor filed a law suit against him to recover
the transfer of the property as a fraudulent conveyance under state law, debtor=s wife reconveyed
the property to herself and the debtor as tenants by the entirety. They jointly filed a homestead
declaration. Then the debtor filed bankruptcy. The trustee and creditor objected to the debtor
claiming a homestead exemption for the property. Section 522(g) allows a debtor to claim an
exemption in property that “the trustee recovers under section 510(c)(2), 542, 543, 550, 551 or
553 of [the Bankruptcy Code] . . . to the extent that the debtor could have exempted such
property under subsection (b) of this section if such property had not been transferred.” The
statute requires that the transfer not be voluntary and the debtor did not conceal the property and
the debtor could have avoided the transfer him/herself.

       The BAP held that the language of the statute was clear and unambiguous and did not
provide that a creditor=s actions outside of bankruptcy were sufficient to fall under section
522(g). The debtor could exempt the property.

      In re Limperis, 370 B.R. 859 (Bankr. S.D. Fla. 2007). Joint debtors are entitled to a
$250,000 exemption under the $125,000 cap requirement, not $125,000 for the joint debtors.

       Dillworth v. Hinton (In re Hinton), 378 B.R. 371 (Bankr. M.D. Fla. 2007). If a debtor
uses Florida state exemptions and owns property with a spouse in a tenancy by the entireties that
property is not subject to section 522(p) or (o).

       In re Schwarz, 362 B.R. 532 (Bankr. S.D. Fla. 2007). Florida real property owned by a
Florida-domiciled debtor was exempt from administration as property of the estate regardless of
when the debtor became a Florida domiciliary if the debtor had, immediately before the
commencement of the case, an interest in the property as a tenant by the entireties with a spouse.

       In re Buonopane, 359 B.R. 346 (Bankr. M.D. Fla. 2007). Same as Hinton.

         In re Lyle, 355 B.R. 161 (Bankr. D. Ariz. 2006). Trustee objected to state law homestead
exemption claimed by debtors in real property on which they resided. Objection was based on
the grounds that the debtors had no ownership interest in the property to support the claimed
exemption and the debtors exemption had to be capped. The court held that, since the debtors
had transferred their homestead to a limited partnership in which they held 100% interests prior
to bankruptcy, they could not claim an Arizona homestead exemption in property based upon
their “right to possession.”

       In re Leung, 356 B.R. 317 (Bankr. D. Mass. 2006). Trustee objected to homestead
exemption of husband/debtor as to property that, prior to deed executed by debtor=s wife within
1215 days of husband’s bankruptcy filing, had been titled solely in wife. The Court held that
debtor acquired an interest in the property when his wife deeded him an interest within 1215
days of the bankruptcy filing and his interest in the property was subject to the $125,000 cap.

        In re McCombs, 2007 WL 4411909 (Bankr. S.D. Tex. 2007). Within 1215 days of a
husband/debtor=s bankruptcy filing, he and his wife purchased two parcels of land. One was a
vacant lot and the other included a house. The debtor and his wife intended to occupy both
parcels as their homestead. Prior to the debtor filing his chapter 7 case, the debtor and his wife
discussed getting a divorce. They drew up an agreement that related to divorce matters and
issues. One of the paragraphs stated that the wife would get “all proceeds from the sale of the
house.” However, the parties did not get a divorce, although they did separate.

        The debtor listed the property on his schedules a community property, noting that his
wife would claim her full Texas exemption. The property was sold and the trustee turned over
$125,000 to the debtor and 2 of the proceeds to the wife. The wife asserted that she was entitled
to the full amount of the sale proceeds due to the agreement she and her husband had made. The
court found the agreement was not binding since the parties did not divorce. The wife also
argued that she had a right to request a full state law exemption of the proceeds since the home
was community property. The court held that she was limited to 2 of the proceeds since debtor
had a right to his 2 interest, which, because of section 522(p) was capped at $125,000.

        In re Fehmel, 2008 WL 2151797 (Bankr. W.D. Tex. 2008) (May decision). Debtors filed
a chapter 7 case. They owned a residence in Texas that they had purchased more than 1215 days
prior to filing. They purchased a second home in Texas as well that, during the 1215-day period,
became their residence. The debtors owned an S corporation–CTP–that owed the debtors about
$130,000 prior to and during the time of the transactions at issue in the case.

        CTP had 2 lines of credit with a bank. The debtors used $73,841.23 of the CTP line of
credit to purchase their second home. They took out a personal loan from another bank to fund
the remaining purchase price. The CTP lender testified that its line of credit was to be used only
for business purposes but the loan documents did not so state.

       The debtors used CTP funds to make the down payment on the second home. The
debtors received $86,200.60 in proceeds from the sale of the first home and put the money in the
CTP account and comingled the money with corporate funds. The debtors made improvements
and additions to the second home and used some of the $86,200 for them as well as other
personal funds. The second home had a $700,000 value and a $297,811.30 mortgage.

       The debtors claimed the entire equity amount as exempt. The CTP lender claimed that
the funds put in the house from the CTP account were not exempt and should be deducted from
the exempt value.

       The court held that section 522(p) does not require any finding of fraud or misconduct to
reduce an exemption amount. The cap applied because the debtors had used money acquired
within 1215 days before the filing to pay for the homestead when they used the comingled
corporate account funds. They could not call the funds a rollover of exempt funds once they had
comingled the sum with other monies.

       In re Fehmel, 2008 WL 2736890 (Bankr. W.D. Tex. 2008). (June decision). Debtor could
not add appreciation to the $125,000 cap amount. Congress did not state that appreciation
should be included.

         In re Behler, — F.3d —, 2008 WL 5412097 (7th Cir. 2008). Husband who was not on
title to house or mortgage could not claim a homestead exemption under Illinois law.

       B.      Extraterritoriality of Exemptions

        There are some states whose case law on exemptions precludes certain exemptions from
being claimed by nonresidents. “See, e.g. Hascall v. Hafford, 107 Tenn. 355, 423, 65 S.W.
423,423 (1901) (“[S]tatutes exempting homestead inure to the benefit of citizens, and non-
residents are excluded from their operation.”); In re Peters, 91 B.R. 401, 404 (Bankr. W.D. Tex.
1988) ( a Texas homestead is limited to real property located within the state of Texas); but see In
re Arrol, 170 F.3d 934 (9th Cir. 1999) where the Court held that the California homestead
exemption does not limit the homestead exemption to dwellings located within California.” and
In re Drenttel, 403 F.3d 611 (8th Cir. 2005), where the Court held that a debtor claiming
Minnesota exemptions was able to exempt an Arizona homestead.

        In re Camp, 296 B.R. 194 (Bankr. W.D. Tex. 2008). A debtor who currently resided in
Texas but had resided in Florida for the 180 day period before the 730 day period, as set forth in
§ 522(b)(2), was required to use the Florida state exemptions. Section 522(b)(3) establishes a
federal choice of law principle. Neither Florida nor Texas choice of law principles apply. “This
Court agrees with the holdings in Drenttel and Arrol that state law choice of law provisions like
residency restrictions are not incorporated in ' 522(b)(3)(A).” 296 B.R. at 198-99.

        In re Drenttel, 403 F.3d 611 (8th Cir. 2005). Debtors lived in Minnesota during the period
applicable for determining exemptions. At the time of their bankruptcy filing, they resided in a
homestead in Arizona. The court held that Minnesota choice of law principles did not preclude
use of the Minnesota exemptions by an Arizona resident under § 522(b)(2)(A). “congress used
state-defined exemptions as a part of a federal bankruptcy scheme, while limiting the application
of state policies that impair those exemptions.” 403 F.3d at 614.

         In re Arrol, 170 F.3d 934 (9th Cir. 1999). Debtor filed bankruptcy in California and was
subject to California exemptions. The court held that the debtor must claim a California
homestead exemption even though he now lived in Michigan. The California statute was not
restricted territorially.

       In re Tate, 2007 WL 81835 (Bankr. D.Or. 2007). Debtors who had moved to Oregon
were required to use the Texas homestead exemption due to their residency in the 1215-day
period before bankruptcy. The debtors claimed an unlimited homestead exemption in their
Oregon home due to Texas’ unlimited exemption. The Court held that Texas homestead law
requires that the law can only be applied to a homestead in Texas. Some states= homestead laws
have extraterritorial effect, but not the law of Texas.

         In re Zolnierowicz, 380 B.R. 84 (Bankr. M.D. Fla. 2007). Debtor and her husband lived
in Illinois prior to 2004. In 1992, they purchased a condominium in Florida. Within 730 days of
filing bankruptcy, they moved from Illinois to the Florida condo. The debtor claimed the Florida
property as exempt under Illinois’ Joint Tenancy Act and section 522(b)(3)(B). Following In re
Schwarz, the Court held that the debtor was a Florida domiciliary who owned her Florida real
property jointly with her husband immediately before her filing. Therefore, Florida law applied
to determine her exemption claim and, due to the fact the condo was owned in a tenancy by the
entireties, the property was fully exempt.

       C.      When is a conveyance of a homestead fraudulent

         Sholdan v. Dietz (In re Sholdan), 217 F.3d 1006 (8th Cir. 2000). Court held that 90-year
old man’s use of all of his assets to buy a home when he had been living in an assisted living
facility before that was done “with intent to . . . defraud.” He had a judgment entered against
him shortly before the transfers and his bankruptcy filing. Use of the badges of fraud to discern
intent was proper. (Dissent by Judge Richard Arnold).

        Addison v. Seaver (In re Addison), 540 F.3d 805(8th Cir. 2008). Debtors converted
nonexempt $11,500 of assets to their homestead and established 2 IRA accounts of $4,000/each.
The court found that these transfers done on the eve of bankruptcy were not fraudulent. Amount
transferred was not all of debtors assets and there was no extrinsic proof of fraud.

        Clark v. Wilmoth (In re Wilmoth), — B.R. —, 2008 WL 5135721 (8th Cir. BAP 2008).
The trustee objected to the debtors= transfer of funds obtained from sale of other assets shortly
before bankruptcy to their homestead. Trustee asserted that under § 522(o) the debtors
transferred funds within 10 years to increase their homestead exemption “with intent to hinder,
delay or defraud” their creditors. The court held that although some badges of fraud were

present, others were not. There was not extrinsic evidence of fraud offered. The debtors had
relied on advice of counsel and hand not put all of their money into their home.

        In re Jones, — B.R. — , 2008 WL 515927 (Bankr. D.S.C. 2008). A debtor allowed a part
of a homestead compound to be foreclosed when he had downsized and moved from the house
on that part of his property to a smaller house on another part. The trustee alleged that this the
foreclosure allowance by the debtor was a disposal of property “with an intent to hinder, delay or
defraud” his creditors. The court held that the foreclosure was not done with intent to defraud.
The debtor was downsizing which was a prudent financial decision under the totality of the

       In re Chauncey, 454 F.3d 1292 (11th Cir. 2006). A Florida debtor transferred funds she
received in a personal injury settlement directly from her personal injury attorney to her
mortgagee. When she filed bankruptcy only a few months later, the trustee sued to have her
discharge based upon the fraudulent conveyance. The bankruptcy court also imposed an
equitable lien on the debtor’s homestead in favor of the trustee.

         The Court held that, under the Florida Constitution, the equitable lien was improper and
the debtor’s homestead was entirely exempt even though the “move [was] designed to deceive
her creditors and [was a] move made in bad faith.” Id. at 1294. The Havoco of Am. Ltd. v. Hill
case, 790 So. 2d 1018 (Fla. 2001) allows assets to be placed in homestead with impunity except,
inter alia, when the funds obtained through fraud or egregious conduct were used to invest in,
purchase or improve the homestead.” Id. at 719.

        In re Hodes, 402 F.3d 1005 (10th Cir, 2005). Debtors claimed a homestead exemption in
$225,000 they had prepaid to a builder to construct a home before creditors filed an involuntary
bankruptcy against them. Creditors claimed it was a fraudulent conveyance. The Court held
that, under Kansas law, a deposit made before the filing of an involuntary case against a debtor is
equitably converted into construction at the moment the contract is executed and is therefore

        Addison v. Seaver (In re Addison), 368 B.R. 791 (8th Cir. B.A.P. 2007). Debtor used
money from his nonexempt investment account to pay down the balance of his mortgage shortly
before his bankruptcy filing. Section 522(o) of the Bankruptcy Code preempts prior Minnesota
cases stating that homestead exemption planning may be appropriate in some circumstances. In
this case the Court held that the debtor did convert nonexempt assets to exempt ones to hinder,
delay and defraud creditors. Thus, the homestead exemption was denied.

       In re Mazon, 387 B.R. 641 (M.D. Fla. 2008). In this case debtors did invest monies
obtained by fraud in their Florida homestead. The court held that an equitable lien could be
imposed on the home since the case fit within one of the exceptions to the broad Florida
homestead protections explained in Havoco of Am. Ltd v. Hill, 790 So.2d 1018 (Fla. 2001).

        Larson v. Howell, 2007 WL 1444093 (D. Mass. 2007). Debtor killed a passenger on a
motorcycle when she failed to yield while making a left turn. The debtor admitted her fault and
had a judgment of “motor vehicle homicide by negligent operation” entered against her. The
charge was a misdemeanor. All other criminal charges were continued without a finding for one

year. Howell, the surviving spouse of the motorcycle passenger obtained a civil judgment
against Larson in the amount of $1,000,000. Larson filed bankruptcy and claimed a $500,000
exemption under Massachusetts law. The creditor objected based upon section 522(q). The
bankruptcy court held that Larson had committed a criminal act as that term is used in section
522(q) and capped Larson=s exemption at $125,000. The district court affirmed.

       Dillworth v. Hinton (In re Hinton), 378 B.R. 371 (Bankr. M.D. Fla. 2007). If a debtor
owns property with a spouse in a tenancy by the entireties and claims the property as exempt
under Florida state exemptions, section 522(o) does not apply to the property.

       D.      Duration of exemption

         In re Cunningham, 354 B.R. 547 (D. Mass. 2006). A debtor properly exempted his home
in his bankruptcy case. A creditor in the bankruptcy case obtained a ruling that a creditor=s debt
was nondischargeable. Postpetition, the debtor sold his homestead and pocketed the proceeds
without reinvesting them in another home. The creditor sought to obtain the funds to satisfy his
nondischargeable debt. The court ruled that the exempt homestead property remained exempt
for purposes of prepetition debts. “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.”
 Id. at 554.


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