In re Chappell
| Decision Date | 11 July 2007 |
| Docket Number | Bankruptcy No. 04-18810.,BAP No. WW-06-1435-RKMo. |
| Citation | 373 B.R. 73 |
| Parties | In re Steve Jay CHAPPELL and Julie Lynn Chappell, Debtors. Michael P. Klein, Chapter 7 Trustee, Appellant, v. Steve Jay Chappell; Julie Lynn Chappell, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
James W. Shafer, Shafer & Bailey, Seattle, WA, for Michael P. Klein, Chapter 7 Trustee.
Marc S. Stern, Seattle, WA, for Steve and Julie Chappell.
Before RIBLET*, KLEIN and MONTALI, Bankruptcy Judges.
We address whether postpetition appreciation of exempt property is to be treated the same under the federal exemption scheme as under a state's exemption scheme. We conclude that controlling Ninth Circuit authority involving state homestead exemptions, which holds that the bankruptcy estate is entitled to postpetition appreciation in excess of the maximum value permitted to be exempted under the statutory authority invoked by the debtor, applies with equal force to exemptions taken under the federal exemption scheme. The factual differences between existing Ninth Circuit authority regarding state exemptions and the federal exemption now in question constitute a distinction without significant difference as to postpetition appreciation. We thus also conclude that a debtor's entitlement to postpetition appreciation is limited to the maximum value of the exemption permitted under the exemption statute invoked.
We REVERSE and REMAND.
Appellee debtors, Steve J. and Julie A. Chappell, filed a Chapter 7 petition on June 30, 2004. Appellant Michael P. Klein was appointed as Chapter 7 trustee.
In Schedules A and D the debtors disclosed ownership of their residence on Camano Island in Washington, which they valued at $350,0001 and declared to be encumbered by $328,488.75 in consensual liens. In Schedule C the debtors claimed the $21,511.25 balance of equity as exempt under 11 U.S.C. § 522(d)(1),2 the federal residence exemption.
The chapter 7 trustee did not object to the claims of exemption within the 30-day period prescribed by Rule 4003(b), or at any time thereafter. No party sought to have the subject residence abandoned pursuant to § 554.
The lender moved for relief from the automatic stay in July 2006, claiming a value of the residence of $350,000 based upon the debtors' June 2004, schedules.
Appellant trustee opposed stay relief on the basis that the value of the residence had increased to $550,000. Accordingly, trustee sought permission to market the residence on the premise that a sale for that amount would result in net proceeds of $140,000, which would suffice to pay all creditors in full and return a surplus to the debtors.
The debtors' response to the lienholder's stay relief motion expressed an ability and willingness to cure the arrears, but opposed the trustee's suggestion to market the residence. Debtors contended that at the time of filing their bankruptcy petition there was no equity in the residence beyond consensual liens and their claimed exemption and, thus, the trustee was not entitled to the postpetition appreciation. Furthermore, debtors argued that the trustee's failure to object to the debtors' claims of exemption raised a presumption that there was no equity above the exemption at the time of filing. The debtors requested a hearing regarding the value of the residence prior to it being listed for sale.
In August 2006, appellant trustee filed a Motion to Determine that Non-exempt Equity in the Debtors' Residence was an Asset of this Estate. After hearings held in September 2006, the bankruptcy court ordered that the subject residence was deemed exempt from administration by the trustee. Based on a finding of the S350,000 value at the time of the petition, the bankruptcy court concluded that because the value of the property was equal to or less than the sum of the secured obligations and the exemption claimed, the residence was withdrawn from administration pursuant to § 522(l) at the expiration of the time to object to exemptions and there was no remaining interest in the residence for the trustee to administer.
This timely appeal ensued.
The bankruptcy court had subject-matter jurisdiction pursuant to 28 U.S.C. § 1334 over this core proceeding under 28 U.S.C. § 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
(1) Whether the postpetition increase in value in the residence beyond the debtors' exemption remained part of the bankruptcy estate and therefore subject to administration by the Trustee.
(2) Whether the debtors' federal residence exemption claim sufficiently distinguishes this case from binding Ninth Circuit case law holding that debtors are not entitled to the postpetition appreciation in their residences beyond the amount of their homestead exemptions under state law.
We review the scope of a statutory exemption de novo, as a question of law. Gonzalez v. Davis (In re Davis), 323 B.R. 732, 734 (9th Cir. BAP 2005), citing Bloom v. Robinson (In re Bloom), 839 F.2d 1376, 1378 (9th Cir.1988). The determination of a homestead exemption based on undisputed facts is a legal conclusion interpreting statutory construction which is reviewed de novo. Wiget v. Nielsen (In re Nielsen), 197 B.R. 665, 667 (9th Cir. BAP 1996), citing Nadel v. Mayer (In re Mayer), 167 B.R. 186, 188 (9th Cir. BAP 1994). Whether property is included in a bankruptcy estate is a question of law also subject to de novo review. Cisneros v. Kim (In re Kim), 257 B.R. 680, 684 (9th Cir. BAP 2000), citing Ramsay v. Dowden (In re Cent. Ark. Broad. Co.), 68 F.3d 213, 214 (8th Cir.1995).
We are guided by basic principles of bankruptcy law. Upon the commencement of a voluntary chapter 7 case, all of a debtor's legal and equitable interests in property on that date become the property of the bankruptcy estate. § 541(a). The appointed chapter 7 trustee serves as the official representative of the estate. § 323(a). The trustee is required to collect and reduce to money the property of the estate for which such trustee serves and to close the estate as expeditiously as is compatible with the best interests of parties in interest. § 704(1).
Section 522 governs the allowance of exemptions in bankruptcy. Under § 522(b)(1) and (2) a debtor has the option to choose between those exemptions provided under federal bankruptcy law under § 522(d), or alternatively, to choose those exemptions made available under state and federal nonbankruptcy law. Section 522(b)(1) also gives the individual states the ability of legislatively "opting-out" of the federal bankruptcy exemption scheme, in which case a debtor's exemptions are entirely dependent on the state of the debtor's domicile. Washington is not a state that has prohibited its domiciliaries from electing the federal exemptions. 4 ALAN N. RESNICK & HENRY J. SOMMER, EDS., COLLIER ON BANKRUPTCY ¶ 522.01, p. 522-16 n. 2 (15th ed. rev.2007). Thus, the debtors here were entitled to claim, and did, in fact claim, federal exemptions. Pursuant to § 522(d)(1), debtors claimed an exemption in their residence in the amount of $21,511.25.
"[T]he critical date for determining exemption rights is the petition date." Goswami v. MTC Dist. (In re Goswami), 304 B.R. 386, 391-92 (9th Cir. BAP 2003), citing White v. Stump, 266 U.S. 310, 313, 45 S.Ct. 103, 69 L.Ed. 301 (1924) and Harris v. Herman (In re Herman), 120 B.R. 127, 130 (9th Cir. BAP 1990). "[E]xemptions ... are determined on the date of bankruptcy and without reference to subsequent changes in the character or value of the exempt property[.]" Culver, LLC v. Chiu (In re Chiu), 266 B.R. 743, 751 (9th Cir. BAP 2001), aff'd, 304 F.3d 905 (9th Cir.2002), citing Herman, 120 B.R. at 130.
Section § 522(l) provides that, "[u]nless a party in interest objects, the property claimed as exempt on [the exemption schedule] is exempt." § 522(l). A trustee cannot contest the validity of a claimed exemption after expiration of the 30-day period established by Rule 4003(b), even where the debtor has no colorable basis for claiming the exemption. Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992).
It is undisputed that the appellant trustee here did not timely object to the debtors' claims of exemption.
Debtors contend that they claimed as exempt the "aggregate" or entire interest in their residence under § 522(d)(1), thereby withdrawing the entire fee from bankruptcy administration. The debtors rely upon Taylor, Owen v. Owen, 500 U.S. 305, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991), and Allen v. Green (In re Green), 31 F.3d 1098 (11th Cir.1994).
In making their "aggregate"-interest-in-the-fee argument, Debtors ignore two important facts. First, nothing in the debtors' Schedule C demonstrates an intent to claim to an "aggregate" or entire interest. The value of their claimed exemption is stated simply as "$21,511.25," the arithmetic difference between the value of the residence and the consensual liens. As reasoned in Hyman v. Plotkin (In re Hyman), 967 F.2d 1316, 1319 n. 6 (9th Cir.1992), because the time to object to claimed exemptions is relatively short, "it is important that trustees and creditors be able to determine precisely whether a listed asset is validly exempt simply by reading a debtor's schedules." Any ambiguity in the schedules is to be construed against the debtor. Id.
Second, debtors ignore the dollar limit imposed by § 522(d)(1).3 As the trustee concedes, the maximum exemption available under § 522(d)(1) is $36,900 (plus any available "wild card" amount under § 522(d)(5)).4 Hence, the debtor's exemption claim did not exceed the maximum amount available to them.
Taylor is not controlling here. In Taylor, the debtor claimed as exempt proceeds from a lawsuit and a claim for lost wages, listing the value as "unknown." No dollar limit was...
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