Klein v. Anderson (In re Anderson)

• Decision Date: 23 March 2020
• Docket Number: Bk. No. 2:17-bk-15492-MLB,BAP No. WW-19-1224-LBG
• Citation: 613 B.R. 279
• Parties: IN RE: Jesslyn Renee ANDERSON, Debtor. Michael P. Klein, Chapter 7 Trustee, Appellant, v. Jesslyn Renee Anderson, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

613 B.R. 279

IN RE: Jesslyn Renee ANDERSON, Debtor.

Michael P. Klein, Chapter 7 Trustee, Appellant,

v.Jesslyn Renee Anderson, Appellee.

BAP No. WW-19-1224-LBG

Bk. No. 2:17-bk-15492-MLB

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on February 27, 2020 at Pasadena, California

Filed – March 23, 2020

Richard Keeton of Bush Kornfeld, LLP, argued for Appellant;

Thomas E. Lester of Lester & Associates, P.S., Inc., argued for Appellee.

Before: LAFFERTY, BRAND, and GAN, Bankruptcy Judges.

LAFFERTY, Bankruptcy Judge:

INTRODUCTION

Michael P. Klein, chapter 7¹ trustee ("Trustee") of the bankruptcy estate of Jesslyn Renee Anderson ("Debtor"), appeals the bankruptcy court’s order overruling his objection to Debtor’s homestead exemption. Debtor was living in her homestead on the petition date, but she moved out shortly thereafter and neither re-occupied the property nor filed a declaration of nonabandonment within six months of moving out. Trustee contended that, despite the fact that Debtor occupied the homestead on the petition date, (1) she lacked the intent to reside there, and (2) under Washington law she had abandoned the property and was thus no longer entitled to claim the homestead exemption. The bankruptcy court distinguished the case law cited by Trustee and ruled that the Debtor was entitled to her homestead exemption despite the fact that she no longer occupied the subject real property.

We AFFIRM.

FACTUAL BACKGROUND

Debtor filed a chapter 7 bankruptcy petition in December 2017. On her schedules, Debtor listed a 15 percent interest in real property on Brown Road in Ferndale, Washington (the "Property"), which she co-owns with her parents. She valued her interest in the Property at $90,000. On Schedule C, she claimed a homestead exemption of $125,000 under RCW §§ 6.13.010, 6.13.020, and 6.13.030. At her § 341 meeting, Debtor testified that shortly after filing bankruptcy, she got married and moved out of the Property to live with her husband.

In February 2018, Trustee filed an objection to Debtor’s homestead exemption, objecting to the amount of the exemption and noting that Debtor was no longer living in the Property. He filed an amended objection in June 2019² in which he argued that Debtor was not entitled to a homestead exemption in the Property because (1) as of the petition date, she did not have a present intent to use the Property as her homestead; and (2) under Washington law, she had abandoned the Property post-petition by failing to reside there for six months or to file a declaration of homestead. Debtor responded to the objection, arguing that, under the "snapshot rule," bankruptcy exemptions are fixed as of the petition date and thus the fact that she had moved out of the Property shortly after filing was irrelevant.

The bankruptcy court held an initial hearing at which it heard argument and took the matter under advisement. At the final hearing on the objection held on August 22, 2019, the bankruptcy court overruled Trustee’s objection.

Trustee timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(1) and (b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Whether the bankruptcy court erred in overruling Trustee’s objection to Debtor’s homestead exemption.

STANDARD OF REVIEW

The bankruptcy court’s application of state exemption law is a question of statutory construction that is reviewed de novo. See Cisneros v. Kim (In re Kim) , 257 B.R. 680, 684 (9th Cir. BAP 2000). We also review de novo the question of whether property is included in a bankruptcy estate. Id. De novo review is independent, with no deference given to the trial court’s conclusion. Barclay v. Mackenzie (In re AFI Holding, Inc.) , 525 F.3d 700, 702 (9th Cir. 2008).

DISCUSSION

Under § 522(b)(2), each state may "opt out" of the federal exemption scheme and limit its residents to the state-created exemptions. Washington has not "opted out." Therefore, a debtor in Washington may choose either the exemptions afforded under state law or the federal exemptions under § 522(d). Here, Debtor selected the Washington exemption scheme, which provides, in relevant part, that a "homestead consists of the dwelling house or the mobile home in which the owner resides or intends to reside, with appurtenant buildings, and the land on which the same are situated .... Property included in the homestead must be actually intended or used as the principal home for the owner." RCW § 6.13.010(1). Washington has two methods for claiming a homestead. Arkison v. Gitts (In re Gitts) , 116 B.R. 174, 178 (9th Cir. BAP 1990), aff’d , 927 F.2d 1109 (9th Cir. 1991). "Property described in RCW 6.13.010 constitutes a homestead and is automatically protected by the exemption described in RCW 6.13.070³ from and after the time the property is occupied as a principal residence by the owner ...." RCW § 6.13.040(1). In other words, if the owner resides on the property as her principal residence, the property is automatically protected by the homestead exemption. Alternatively, if the owner is not residing in the property, she may establish a homestead by recording a declaration of homestead stating that she intends to reside on the premises and, if applicable, by recording a declaration of abandonment of any automatic homestead or any existing declared homestead. In re Gitts , 116 B.R. at 178 ; RCW § 6.13.040.

Washington law also provides that "[a] homestead is presumed abandoned if the owner vacates the property for a continuous period of at least six months." RCW § 6.13.050. The owner may avoid the presumption of abandonment by filing a declaration of nonabandonment of homestead with the appropriate county recorder. Id.

Washington exemption statutes are liberally construed in favor of protecting family homes. See Jefferies v. Carlson (In re Jefferies) , 468 B.R. 373, 380 (9th Cir. BAP 2012) (citing In re Dependency of Schermer , 161 Wash.2d 927, 169 P.3d 452, 465-66 (2007) ; Pinebrook Homeowners Ass’n v. Owen , 48 Wash.App. 424, 739 P.2d 110, 113 (Wash. Ct. App. 1987) ).

When the homeowner files bankruptcy, her right to claim an exemption is fixed as of the petition date; this is often referred to as the "snapshot rule." Wolfe v. Jacobson (In re Jacobson) , 676 F.3d 1193, 1199 (9th Cir. 2012) (citing White v. Stump , 266 U.S. 310, 313, 45 S.Ct. 103, 69 L.Ed. 301 (1924) ); see also Hopkins v. Cerchione (In re Cerchione) , 414 B.R. 540, 548 (9th Cir. BAP 2009) ("A debtor’s entitlement to claimed exemptions generally is determined as of the date of such debtor’s bankruptcy filing."). Under § 522(b)(3)(A), exemptions are to be determined in accordance with the state law applicable on the date of filing. In re Jacobson , 676 F.3d at 1199. The entire state law applicable on the filing date is determinative of whether an exemption applies. Id. (citing Zibman v. Tow (In re Zibman) , 268 F.3d 298, 304 (5th Cir. 2001) ). See also In re Wieber , 182 Wash.2d 919, 347 P.3d 41, 44 (Wash. 2015) (court must consider the entire homestead exemption chapter to answer certified question of whether homestead applies extraterritorially to real property in other states).

In his appellate brief, Trustee did not dispute that, as of the petition date, Debtor was living in the Property and was thus entitled to the automatic homestead exemption on that date, and he seemed to have abandoned any argument that she was required to have an intent to continue to reside there. At oral argument on appeal, however, counsel for Trustee argued that because Debtor moved out shortly after the petition date, she could not have intended to continue living in the Property on that date. But, as the bankruptcy court aptly noted in its oral ruling, the plain language of Washington’s homestead statute reflects that Debtor was entitled to an automatic homestead exemption on the petition date, so long as she was occupying the Property as her principal residence, regardless of her future plans: "Property included in the homestead must be actually intended or used as the principal home for the owner." RCW § 6.13.010(1) (emphasis added). In other words, if the owner is occupying the homestead property as of the petition date, the inquiry ordinarily ends there; intent comes into play only if the owner does not occupy the property. Trustee has cited no cases to the contrary, nor have we found any.⁴

But Trustee’s primary argument on appeal is that under Washington law, Debtor’s right to claim the homestead exemption was conditional upon her remaining in the Property or filing a declaration of nonabandonment and, because she did not, she automatically lost the right to the exemption after six months had passed.

Trustee has not cited any controlling or analogous case law involving the specific provision of the Washington exemption statute at issue here, nor have we found any. Trustee relies on Ninth Circuit cases holding that, although exemption rights are fixed as of the petition date, those rights are subject to whatever contingencies may be placed upon them by other applicable provisions of state homestead law. See In re Jacobson , 676 F.3d 1193 ; In re Gitts , 116 B.R. 174 ; and England v. Golden (In re Golden) , 789 F.2d 698 (9th Cir. 1986).

In Golden , the debtor had sold homestead property pre-petition and declared the proceeds exempt under California law, but failed to reinvest the proceeds within six months as required under California exemption statutes, as interpreted by California courts. 789 F.2d at 700 (citing Thorsby v. Babcock , 36 Cal. 2d 202, 222 P.2d 863 (1950) ). After that period expired, the bankruptcy court granted the chapter 7 trustee’s motion for turnover of the proceeds. The Ninth Circuit affirmed, citing the California reinvestment requirement, and holding that "when the debtor fails to reinvest homestead proceeds within a period of six months in which the debtor has control of those proceeds, the proceeds should revert to...