Fernandez v. Miller (In re Fernandez), EP-11-CV-123-KC

Decision Date05 August 2011
Docket NumberEP-11-CV-123-KC
PartiesIn Re ALFRED L. FERNANDEZ, Debtor. ALFRED L. FERNANDEZ, Appellant, v. J. MARSHALL MILLER, Chapter 7 Trustee, Appellee.
CourtUnited States District Courts. 5th Circuit. Western District of Texas

J. MARSHALL MILLER, Chapter 7 Trustee, Appellee.



SIGNED: August 5, 2011


On this day, the Court considered Alfred L. Fernandez's ("Debtor") appeal from a final order of the United States Bankruptcy Court for the Western District of Texas. Appellant has requested oral argument pursuant to Federal Rule of Bankruptcy Procedure 8012. However, after reviewing the briefs and the record, the Court has determined that oral argument is not needed because the briefs and record adequately present the facts and legal arguments. See Fed. R. Bankr. P. 8012.

For the reasons set forth below, the bankruptcy court's order is REVERSED and REMANDED.


The relevant facts of this case are undisputed. Debtor was born, raised, and educated in El Paso, Texas. He purchased a home in El Paso in 1987, and resided there while working in El Paso until 2000. At that time Debtor was laid off from his job in El Paso and moved to Nevada

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for work. He lived in Nevada until 2009, but never sold his El Paso home. He continued to make the payments on it, and always intended to keep it as his homestead. In January 2009, Debtor moved back to El Paso and took up residence at his El Paso home. He filed a petition for bankruptcy approximately one year later, on December 31, 2009. As of the date of filing his petition, Debtor held approximately $70,000 in equity in the home.

In his petition, Debtor claimed the unlimited homestead exemption under Texas law for his home. The trustee, J. Marshall Miller ("Trustee"), objected, and Debtor amended his petition, with the consent of Trustee, to claim the $550,000 homestead exemption under Nevada law instead. Trustee again objected, and after a hearing, the bankruptcy court sustained the objection and held that Debtor was not eligible to claim the Nevada exemptions. See In re Fernandez, 445 B.R. 790 (Bankr. W.D. Tex. 2011); Order Denying Claim of Exemption, In re Alfred L Fernandez, No. 09-32896-C (Bankr. W.D. Tex. Mar. 4, 2011), ECF No. 35. Debtor now appeals the bankruptcy court's ruling.


District courts have jurisdiction to hear "appeals from final judgments, orders, and decrees . . . of bankruptcy judges entered in cases and proceedings" under the bankruptcy laws in Title 11 of the United States Code. 28 U.S.C. § 158(a). Such proceedings include so-called "core proceedings," such as rulings on the "allowance or disallowance of . . . exemptions from property of the estate." Id. § 157(b)(2)(B). Unlike in non-bankruptcy cases, a final order for the purposes of § 158 appellate jurisdiction need not dispose of the entire case; under § 158 a final order is any order that "ends a discrete judicial unit in the larger case." Smith v. Revie (In re Moody), 817 F.2d 365, 367-68 (5th Cir. 1987). An order of a bankruptcy court granting or

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denying an exemption is a final order for the purposes of § 158(a). See England v. FDIC (In re England), 975 F.2d 1168, 1172 (5th Cir. 1992) ("An order which grants or denies an exemption will be deemed a final order for the purposes of 28 U.S.C. § 158(d)."). Here, the order of the bankruptcy judge denied Debtor an exemption, so it is a final order and therefore this Court has jurisdiction over the appeal from that order. See Order Denying Claim of Exemption, In re Alfred L Fernandez, No. 09-32896-C (Bankr. W.D. Tex. Mar. 4, 2011), ECF No. 35.


"When reviewing a bankruptcy court's decision in a 'core proceeding,' a district court functions as a appellate court and applies the standard of review generally applied in federal court appeals." Webb v. Reserve Life Ins. Co. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992) (citing Griffith v. Oles (In re Hipp, Inc.), 895 F.2d 1503, 1517 (5th Cir. 1990)). Federal Rule of Bankruptcy Procedure 8013 provides that district courts shall not set aside a bankruptcy court's findings of fact unless clearly erroneous. Fed. R. Bankr. P. 8013. But the Court reviews the bankruptcy court's conclusions of law de novo, and is not required to extend any deference to the bankruptcy court's analysis. Milligan v. Trautman, 340 B.R. 773, 776 (W.D. Tex. 2006) (citing Coston v. Bank of Malvern, 987 F.2d 1096, 1099 (5th Cir.1992)).


The Court proceeds by first setting out as background the general operation of bankruptcy law in this area. Then, the Court examines the specific bankruptcy law provision that is at issue in this case. Because the precise meaning of that provision is unclear, the Court considers in turn the three different approaches courts have taken when interpreting the statute. After determining which interpretation best reflects Congress's intent, the Court proceeds to apply it to the facts of

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this case.

A. Application of State Homestead Exemptions in Bankruptcy

The estate in a bankruptcy proceeding consists of the property belonging to a debtor, which is to be distributed, or sold and the proceeds distributed, to the Debtor's creditors. See Owen v. Owen, 500 U.S. 305, 308 (1991). However, debtors may exempt certain property from the estate so that they might have the minimal resources needed to regain their financial footing and have a "fresh start." See In re Williams, 369 B.R. 470, 476 (Bankr. W.D. Ark. 2007); Owen, 500 U.S. at 308 ("An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor."). Congress has long allowed debtors to claim as exempt either the property listed in federal bankruptcy statutes or in state exemption laws. Camp v. Ingalls (In re Camp) (Camp II), 631 F.3d 757, 759-60 (5th Cir. 2011) (citing 11 U.S.C. § 522(b)(1)). However, bankruptcy law permits states to "opt-out" of the federal set of exemptions and thereby limit debtors governed by such states' law to the use of that state's exemptions. 11 U.S.C. § 522(b)(1)-(2) ("an individual debtor may exempt from property of the estate the property listed in [federal exemption law] . . . unless the State law that is applicable to the debtor . . . specifically does not so authorize"). Most states have in fact opted out, and restrict debtors subject to their laws to using the state exemptions. Graziadei v. Graziadei (In re Graziadei), 32 F.3d 1408, 1410 n.3 (9th Cir. 1994) (noting that most states, including Nevada, have opted out).

Prior to 2005, the bankruptcy statute specified that the applicable state exemption law was the law of the state that had been the debtor's domicile for the greater part of 180 days preceding the filing of the petition. 11 U.S.C. § 522(b)(2)(A) (2004); Stephens v. Holbrook (In re Stephens), 402 B.R. 1, 3 (B.A.P. 10th Cir. 2009). In 2005, through the Bankruptcy Abuse

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Prevention and Consumer Protection Act of 2005 ("BAPCPA"), Congress amended this section of the bankruptcy laws to extend the time that a debtor must live in a state before being able to claim that state's exemptions, from the greater part of 180 days to 730 days. See BAPCPA, Pub. L. No. 109-8, § 307, 119 Stat. 23, 81 (2005); In re Varanasi, 394 B.R. 430, 434 n.5 (Bankr. S.D. Ohio 2008) (citing In re Virissimo, 332 B.R. 201, 203 (Bankr. D. Nev. 2005)). Congress's purpose in extending the "look-back" window was to prevent debtors from forum-shopping by moving to a state with generous exemption laws, living there for 91 days (that being the greater part of 180 days), and then filing for bankruptcy. Stephens, 402 B.R. at 3 n.8; Drummond v. Urban (In re Urban), 375 B.R. 882, 889 (B.A.P. 9th Cir. 2007) (citing H.R. Rep. No. 109-31, pt. 1, at 15-16 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 102) (describing BAPCPA as closing the "so-called 'mansion loophole,'" whereby debtors relocate to states where they can shield virtually all of the equity in their homes from their creditors); In re Bingham, No. 06-40990, 2008 WL 186277, at *5 (Bankr. D. Kan. Jan. 18, 2008) ("the changes to the domicile requirements for exemptions were primarily, if not solely, intended to prevent debtors from" forum-shopping to protect assets under certain states' more generous bankruptcy exemptions).

The amended statute, § 522(b), now reads,

(1) . . . [A]n individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection
. . . .
(2) Property listed in this paragraph is property that is specified under [the federal bankruptcy law exemptions], unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize.
(3) Property listed in this paragraph is--
(A) . . . any property that is exempt under Federal law, other than [the federal bankruptcy law exemptions], or State or local law that is applicable

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on the date of the filing of the petition to the place in which the debtor's domicile has been located for the 730 days immediately preceding the date of the filing of the petition or if the debtor's domicile has not been located in a single State for such 730-day period, the place in which the debtor's domicile was located for 180 days immediately preceding the 730-day period or for

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