Hyman, In re

• Decision Date: 22 June 1992
• Docket Number: No. 91-55300,91-55300
• Citation: 967 F.2d 1316
• Parties: , Bankr. L. Rep. P 74,706 In re Irwin HYMAN; Janice Hyman, Debtors. Irwin HYMAN; Janice Hyman, Appellants, v. Gary A. PLOTKIN, Trustee, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1316

967 F.2d 1316

23 Bankr.Ct.Dec. 153, Bankr. L. Rep. P 74,706

In re Irwin HYMAN; Janice Hyman, DebtorsIrwin HYMAN; Janice Hyman, Appellants, v.Gary A. PLOTKIN, Trustee, Appellee.

No. 91-55300.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 7, 1992.

Decided June 22, 1992.

Richard M. Moneymaker, Moneymaker & Kelley, Los Angeles, Cal., for appellants.

Amy L. Goldman, Plotkin & Rapaport, Encino, Cal., for appellee.

Appeal from the Bankruptcy Appellate Panel for the Ninth Circuit.

Before: TANG, KOZINSKI and TROTT, Circuit Judges.

KOZINSKI, Circuit Judge.

More than 40 states, including California, have statutes that place a debtor's homestead or a portion thereof beyond the reach of creditors.This protection carries over into bankruptcy to shelter the debtor from forced sale of his homestead by a bankruptcy trustee unless certain conditions are satisfied.In this casewe explore the conditions to be met before a bankruptcy trustee may sell a debtor's homestead in accordance with California's homestead exemption statute and the United States Bankruptcy Code.

Facts

On November 21, 1988, Appellants Irwin and Janice Hyman filed a voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code.AppelleeGary Plotkin was appointed as trustee to liquidate the Hymans' estate pursuant to 11 U.S.C. § 704.

The only real property the Hymans owned was their home, which they valued at $415,000 and which was encumbered by $347,611 in consensual liens.On their bankruptcy schedule of exempt property, the Hymans claimed their "homestead" as exempt under Cal.Civ.Proc.Code § 704.720, listing the value of the exemption as $45,000.¹The trustee did not object to this claim of exemption within the 30-day window created by BankruptcyRule 4003(b), or at anytime thereafter.Instead, on January 18, 1989, he applied to the bankruptcy court to employ a real estate broker to assist in the marketing and sale of the Hymans' home; the court granted the application twelve days later.

Unpleasantly surprised by the trustee's actions, the Hymans filed for declaratory judgment, claiming their home was not an asset of the estate because of its exempt status, and thus was beyond the reach of the trustee.In the alternative, they claimed all post-petition appreciation in the value of their home inured to them, not to the estate; they were therefore entitled, in their eyes, to the $45,000 exemption under Cal.Civ.Proc.Code § 704.730 plus the increase in the value of their home from the bankruptcy filing date to the sale date.The bankruptcy court, Bankruptcy Judge Geraldine Mund presiding, granted summary judgment in favor of the trustee, and a divided Bankruptcy Appellate Panel affirmed.123 B.R. 342(9th Cir. BAP1991).

Discussion

This case turns largely on the proper interpretation of California's homestead exemption statute.That statute defines "homestead" as a judgment debtor's principal dwelling place, Cal.Civ.Proc.Code § 704.710(c), and "homestead exemption" as a fixed dollar amount generated from the sale of the homestead.Id., § 704.730.For the Hymans that amount is $45,000.Id., § 704.730(a)(2).²State law also provides that a judgment debtor's homestead may not be sold by judgment creditors unless the sale price of the homestead "exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property...."Id., § 704.800(a).If the sale price does exceed these amounts, the homestead may be sold and the judgment debtor is entitled to a sum equal to his homestead exemption from the proceeds of the sale.Id., § 704.720(b).³

Of course, the Hymans were not "judgment debtors" under California law, but bankruptcy petitioners under federal law.Nevertheless, section 522(b)(2)(A) of the Bankruptcy Code excludes from a debtor's bankruptcy estate "any property that is exempt under ... State or local law that is applicable ... at the place in which the debtor's domicile has been located...."Because the Hymans had been domiciled in California "for the 180 days immediately preceding the date of the filing of [their] petition,"id., section 522 entitled them to exempt from their estate any property qualifying under California's homestead exemption statute.

A.The Hymans first argue that by listing "homestead" instead of "homestead exemption" on their schedule of exempt property, they were claiming as exempt property their entire homestead, not just $45,000.⁴Because the trustee did not object to this listing within the time allowed by BankruptcyRule 4003(b), the Hymans claim that their entire homestead became exempt property by operation of law.11 U.S.C. § 522(1)("The debtor shall file a list of property that the debtor claims as exempt....Unless a party in interest objects [within the time allowed by Rule 4003], the property claimed as exempt on such list is exempt.").

However, "[w]e have reviewed Debtor's bankruptcy petition, 'Schedule B-4--Property claimed as exempt,' and find this assertion to be erroneous."In re Reed, 940 F.2d 1317, 1321 n. 3(9th Cir.1991).⁵The Hymans' schedule of exempt property listed "homestead" as an exemption under Cal.Civ.Proc.Code § 704.720, and valued the exemption at $45,000.Based on this information, the Hymans did not sufficiently notify others that they were claiming their entire homestead as exempt property; their schedule only gave notice that they claimed $45,000 as exempt, which is the proper amount of their homestead allowance under sections 704.720and704.730.SeeReed, 940 F.2d at 1321 n. 3.Thus, the trustee had no basis for objecting, and could well have suffered the bankruptcy judge's ire had he objected to the $45,000 exemption to which the Hymans were clearly entitled.⁶

B.Next, the Hymans argue that even if they were limited to a $45,000 homestead exemption, they were still entitled to summary judgment.Their bankruptcy petition listed the value of the home as $415,000 and encumbrances as $347,611; the trustee never objected to these valuations.Assuming, as the Hymans would have us, that the trustee sold the home for $415,000 and the sale costs were 8%, or $33,200, this would leave only $34,189 after the encumbrances ($347,611) were paid off.Because this amount is below the Hymans' homestead exemption allowance of $45,000, they argue that California's homestead exemption statute does not allow the trustee to sell the homestead.SeeCal.Civ.Proc. § 704.800(a).

The flaw in the Hymans' argument is that it is not supported by the statutory language upon which they rely.Section 704.800 permits the forced sale of a homestead if its sale price "exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property."There is no statutory requirement that the sale price also account for selling costs, ⁷ and there is no doubt that the formula contained in section 704.800 is satisfied.⁸

Independent of the trustee's obligation under section 704.800 is his obligation under 11 U.S.C. § 704(1) to act in "the best interest of parties in interest" in reducing estate property to cash.It's doubtful this obligation would be satisfied if the trustee sold the Hymans' home for less than the homestead exemption, encumbrances, selling costs and trustee's own fees.However, nothing in 11 U.S.C. § 704 or elsewhere in the Bankruptcy Code requires that the trustee demonstrate in advance of attempting a sale that the market price will exceed all costs and encumbrances.The sale of encumbered property is a relatively complex financial transaction and the trustee cannot be certain of what he will reap until he has taken bids on the property.Some of the variables involved are known in advance, such as the amounts of the homestead exemption and encumbrances.Other variables remain unknown until the bids are in, such as the sale price ⁹ and, to a lesser extent, the sale costs.¹⁰Little would be gained by prohibiting the trustee from attempting a sale in the sound belief that there will be something left for the estate after the liens, sale expenses and homestead exemption are covered.This is especially true because the trustee is not bound to accept a bid that does not enable him to satisfy his obligations, and may simply refuse to go through with a sale if none of the bids proves sufficiently advantageous.

C.Finally, the Hymans argue that the bankruptcy court erred in holding that they are only entitled to $45,000 upon the sale of the home.According to the Hymans, they are entitled to $45,000 plus the home's appreciation in value since the filing of the bankruptcy petition.As a fallback, they argue that they're entitled at least to that part of the appreciation which stands in the same proportion to the total appreciation as their homestead exemption stands to the value of their home.

We note initially that this argument is somewhat premature.The question squarely before us is not what is the exact amount to which the Hymans will be entitled upon final distribution of the proceeds of sale, but whether a sale will be held at all.On that issue alone, the bar against forced sale embedded in California Code of Civil Procedure § 704.800 speaks only in terms of the amount of the exemption itself, not any appreciation or depreciation due to the passage of time.Thus, even if it turns out that the Hymans would be entitled to some amount in excess of the $45,000 at the time of the final accounting, only the $45,000 itself may be considered in determining whether a sale may be held under section 704.800.

In any event, the Hymans' claim for appreciation is without merit.The California statute gives the Hymans a $45,000 exemption as of the time of sale, not a $45,000 equity interest in the property.In the normal situation where section 704.800 is called into play--a sale of property to satisfy a judgment lien--the concept...