In re Skipwith

• Decision Date: 03 March 1981
• Docket Number: Bankruptcy No. 80-01274-M.
• Citation: 9 BR 730
• Parties: In re Robert Glenn SKIPWITH and Roberta Rae Skipwith, fdba Nature Land Farms, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of California

9 B.R. 730 (1981)

In re Robert Glenn SKIPWITH and Roberta Rae Skipwith, fdba Nature Land Farms, Debtors.

Bankruptcy No. 80-01274-M.

United States Bankruptcy Court, S.D. California.

March 3, 1981.

Louis M. Karp, James McCafferty, San Diego, Cal., for debtors.

Philip J. Giacinti, Jr., San Diego, Cal., Trustee.

MEMORANDUM DECISION REGARDING TRUSTEE'S OBJECTIONS TO EXEMPTION CLAIMS

JAMES W. MEYERS, Bankruptcy Judge.

I

This dispute brings into focus several issues concerning the availability of state and federal exemptions to joint debtors who have sought relief under the United States Bankruptcy Code ("Code"). The debtors, Mr. & Mrs. Robert Skipwith, filed their Chapter 7 petition on May 19, 1980. The trustee, Mr. Philip J. Giacinti, Jr., filed his objections to certain claims of exemption contained in their petition. A hearing was then held before this Court on the issues presented. Having now had an opportunity to reflect upon these questions, this Court finds that the objections should be sustained in part. This opinion will set forth the reasoning behind that decision.

II FACTS

The debtors currently own improved real property situated in this district with an estimated fair market value of $75,000. This property was acquired by the debtors during their marriage and is therefore community property. See Cal.Civ.Code § 5110 (West). The property is encumbered with liens totaling $32,661, leaving an equity for the debtors of over $42,000. On March 11, 1980, the debtors sought to perfect a homestead in this property, and to that end, Mrs. Skipwith executed and had recorded, a declaration declaring the premises to be a homestead and stating that the declaration was filed for the joint benefit of herself and her husband.

Among their other assets was a promissory note payable to the debtors which was secured by a deed of trust. This asset is also community property. See Cal.Civ.Code § 5110 (West). The note was executed by Mr. & Mrs. Daniel Cayan pursuant to an agreement with the debtors whereby the Cayan's purchased a parcel of "farmland" from the debtors. The amount owing on the note is $12,875.

Both of these assets were claimed exempt by the debtors. Mr. Skipwith sought to utilize the federal exemptions contained in Section 522(d) of the Code to shield the note.¹ See 11 U.S.C. § 522(d). Mrs. Skipwith elected to claim a state homestead in their residence. See Cal.Civ.Code §§ 1237 et seq. (West).²

III DISCUSSION

A. CLAIM OF EXEMPTION OF PROMISSORY NOTE

The trustee's objection to the debtors' exemption of the promissory note is premised on the law of community property in California. The trustee argues that one joint debtor, here Mr. Skipwith, can exempt only his "aggregate interest" in a community asset. In this case the trustee suggests that this amount is $3,950, or one half of the $7,900 exemption afforded by Section 522(d)(5). This claim is based on the view that since a spouse's interest in community property is "present, existing and equal ....", see Cal.Civ.Code § 5105 (West), one joint debtor is entitled to exempt only one half of a community asset. Here then, Mr. Skipwith's "aggregate interest" in the note is said to be only $3,950, and the estate is thus entitled to the remaining $3,950.

The debtors, naturally, take issue with this reasoning. They point out that community property interests are not "divisible in a bankruptcy context ...." They further argue that each spouse has an undivided interest in all of the community property and that the exemption given by Section 522(d)(5) applies to "any property". By this, the debtors are taken to mean that the exemption in Section 522(d)(5) applies to all property claimed exempt by a joint debtor regardless of its status.

The extent of a joint debtor's federal exemption rights in community property was recently defined by this Court in In re Smith, 8 B.R. 375 (S.Cal.1980). In Smith, this Court determined that if only one joint debtor claims a federal exemption under Section 522(d) in a piece of property, then it will only be recognized to the extent of the debtor's aggregate interest in the property. In California community property that interest cannot exceed 50% of the value of the property in question.

Here the note is valued at $12,875, with Mr. Skipwith's interest being one half, or $6,437.50. Therefore, Mr. Skipwith's claim of exemption in the property will be recognized only in the amount of his individual interest.

B. CLAIM OF HOMESTEAD EXEMPTION ON RESIDENCE

1. Right to State Homestead Exemption

In this case Mrs. Skipwith has claimed a homestead exemption in the amount of $40,000 in the debtors' residence, in which they had an equity of $42,339. Mrs. Skipwith made this claim relying on California statutes providing for homestead protection. See Cal.Civ.Code §§ 1237 et seq.; 11 U.S.C. § 522(b)(1). Mr. Skipwith has not made any claims under California law, but has instead chosen the new federal exemptions provided in the Code. See 11 U.S.C. § 522(d).

Shortly after this matter was taken under submission, Judge Herbert Katz, of this district, issued his opinion in In re Scott, ___ B.C.D. ___ (S.Cal., No. 80-00732-K, Oct. 24, 1980). In that decision, Judge Katz held that California law requires the union of both spouses in claiming the benefits of the state homestead exemption. Scott would preclude one joint debtor from taking advantage of the new federal exemptions while the other spouse was claiming the full "head of household" California homestead exemption. Slip op. at 8. See also In re Dill, 6 B.R. 396 (Bkrtcy.N.Cal. 1980). The Scott decision appears to reach a conclusion in direct conflict with that reached by two of our colleagues located in other California districts. See In re Ancira, 5 B.R. 673, 6 B.C.D. 864 (Bkrtcy.N.Cal. 1980); In re Collins, 5 B.R. 675, 6 B.C.D. 834 (Brktcy.N.Cal.1980); Matter of Brosius, 7 B.R. 811 (Brktcy.C.Cal., 1980). These courts focus on Section 522(m) of the Code which allows each joint debtor the freedom to choose between the state and federal exemptions. Both courts then go on to find that in California, one joint debtor can claim the full benefits, as the head of household, of the state homestead statutes, while the other spouse claims the federal exemptions.

The questions discussed in these decisions are inherently raised by the trustee in his challenges to the debtors' claims of exemption, although initially they were not specifically addressed by the parties. In considering the conflicting authorities, which includes one decision by a fellow member of this district's bankruptcy bench, it is necessary for this Court to reach its own independent determination on the issues presented. See e.g., White v. Baltic Conveyor Company, 209 F.Supp. 716, 722 (N.J. 1962). With this end in mind, the parties were asked to further brief the Court and these briefs have now been received.

In examining the debtors' claims of exemption it should be noted that their claims enjoy a presumption of validity with the burden of challenging them being on the trustee. See In re Crump, 2 B.R. 222, 5 B.C.D. 1235 (Bkrtcy.S.Fla.1980). Also, California law favors homesteads for they are constitutionally authorized, statutorily enacted and liberally protected. See Lee v. Brown, 18 Cal.3d 110, 113, 132 Cal.Rptr. 649, 553 P.2d 1121 (1976); In re Howell, 638 F.2d 81 (9th Cir. 1980). The broad purpose of the homestead law is to promote the security of the home by placing such property beyond the reach of the consequences of the home owner's economic misfortune. See Adams, Homestead Legislation in California, 9 Pac.L.J. 723 (1978). This liberal treatment accorded homestead claims by the California courts must be respected by this Court. See Towers v. Curry, 247 F.2d 738, 740 (9th Cir. 1957).

Under Section 522 of the Code an individual debtor may choose the federal exemptions stated in Section 522(d), or may choose any exemptions to which entitled under other applicable law, either state or federal. In a joint case this freedom of choice is clearly awarded to each debtor under Section 522(m). However, in making this choice a debtor can only receive the benefits of a state created exemption provision if the debtor is eligible therefor and has properly perfected the claim according to state law. This is because there is nothing in the Code which suggests that when a debtor chooses to utilize state exemptions, that the debtor is free from the restrictions established by state law. See In re Lowe, 7 B.R. 248, 250 (Bkrtcy.E.Wash.1980). Thus, a joint debtor may select the state exemptions, but must abide by the state rules regulating the grant of such protection. See In re Ageton, 5 B.R. 323, 325, 6 B.C.D. 706, 707 (Bkrtcy.Ariz.1980).

California law, as summarized in Matter of Brosius, reflects that:

case law holds that the California homestead exemption extends to the entire interest of both spouses in the property. Strangman v. Duke, 140 Cal.App.2d 185, 295 P.2d 12 (1956); Schoenfeld v. Norberg, 11 Cal.App.3d 755, 90 Cal.Rptr. 47 (1970). However, under the California Homestead Act (C.C. § 1237 et seq.), although it is not necessary for both spouses to join in executing and claiming the homestead exemption, it is always filed for the joint benefit of both spouses. C.C. § 1262, 1263. Under California law, there appears to be no provision for a married person to file a homestead for his or her own benefit absent legal separation. C.C. § 1300.

Matter of Brosius, supra, 7 B.R. at 812-13 (emphasis added). See also Harley v. Whitmore, 242 Cal.App.2d 461, 466-67, 51 Cal. Rptr. 468 (1966).

Now the Court in Brosius points to the fact that under California law married couples do not have to physically join in the homestead declaration and either spouse can declare the homestead. See Cal.Civ. Code § 1262 (West). However, focusing on the mechanics established to declare a homestead overlooks the essential of California law that the...