Wilson v. Rigby

• Decision Date: 27 November 2018
• Docket Number: No. 17-35716,17-35716
• Citation: 909 F.3d 306
• Parties: Debra Lea WILSON, Appellant, v. James RIGBY; First Citizens Bank, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

909 F.3d 306

Debra Lea WILSON, Appellant,

v.James RIGBY; First Citizens Bank, Appellees.

No. 17-35716

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 8, 2018 Seattle, Washington

Filed November 27, 2018

Larry B. Feinstein (argued), Vortman & Feinstein, Bellevue, Washington, for Appellant.

Thomas S. Linde (argued) and Michael M. Sperry, Schweet Linde & Coulson PLLC, Seattle, Washington; Denice E. Moewes, Wood & Jones P.C., Seattle, Washington; Alexander S. Kleinberg, Eisenhower Carlson PLLC, Tacoma, Washington, for Appellees.

Jon Erik Heath (argued), San Francisco, California, for Amici Curiae National Association of Consumer Bankruptcy Attorneys and National Consumer Bankruptcy Rights Center.

Before: Jay S. Bybee and N. Randy Smith, Circuit Judges, and Paul C. Huck,^* District Judge.

Dissent by Judge Huck

OPINION

N.R. SMITH, Circuit Judge:

The filing date of a bankruptcy petition determines the law governing exemptions and freezes the value of the exemptions that the debtor may claim. Because Debra Wilson's amended bankruptcy schedules sought to claim more than Washington law permitted her to claim as of the petition date, we affirm the district court's decision, limiting her claimed exemption to the amount she was entitled to under Washington law as of the petition date.

I.

Wilson filed her voluntary Chapter 7 petition for bankruptcy on December 18, 2013. In her initial Schedule C, Wilson elected to take the federal exemptions and listed the "wildcard" exemption. At the time the petition was filed, Wilson's one-bedroom condominium was valued at $250,000 and was subject to a $246,440 mortgage. Accordingly, Wilson listed the value of her exemption as $3,560, equal to the equity in her home as of the petition date. During the pendency of the bankruptcy, the value of the property increased. On July 18, 2016, Wilson amended her Schedule C, claiming "100% of fair market value, up to any applicable statutory limit," listing the value of the property at $412,500. The amended schedule listed Washington's homestead exemption as the basis for the amended exemption. The Trustee, James Rigby, and the Bank, First-Citizens Bank & Trust Co., opposed the amendments. After oral argument, the bankruptcy court held that an amendment to update the value of an exemption in light of post-petition changes in value was not permitted. Accordingly, the court held that Wilson could not claim more than $3,560 in the property. Wilson appealed to the district court, and the district court affirmed the bankruptcy court. This appeal timely followed.

II.

We review the scope of bankruptcy exemptions de novo. See Lieberman v. Hawkins (In re Lieberman ), 245 F.3d 1090, 1091 (9th Cir. 2001). Likewise, we independently review the bankruptcy court's decision without deference to the district court's decision. Rosson v. Fitzgerald (In re Rosson ), 545 F.3d 764, 770 (9th Cir. 2008).

III.

A debtor's exemptions have long been fixed at "the date of the filing of the [bankruptcy] petition." White v. Stump , 266 U.S. 310, 313, 45 S.Ct. 103, 69 L.Ed. 301 (1924) ; Wolfe v. Jacobson (In re Jacobson ), 676 F.3d 1193, 1199 (9th Cir. 2012) ("Under the so-called ‘snapshot’ rule, bankruptcy exemptions are fixed at the time of the bankruptcy petition."). This rule determines not only what exemptions a debtor may claim, it also fixes the value that a debtor is entitled to claim in her exemptions. Gebhart v. Gaughan (In re Gebhart ), 621 F.3d 1206, 1211 (9th Cir. 2010) (noting the well-settled holding in this circuit "that what is frozen as of the date of filing the petition is the value of the debtor's exemption, not the fair market value of the property claimed as exempt"); see also Hyman v. Plotkin (In re Hyman ), 967 F.2d 1316, 1321 (9th Cir. 1992) ("Were we to accept the Hymans' argument that they're entitled to post-filing appreciation, we would also have to hold that a debtor is subject to post-filing de preciation, which would give debtors in falling property markets less than the $45,000 guaranteed them by state law. Nothing in the bankruptcy law compels (or even suggests) such a drastic interference with the operation of the state homestead exemption statute. In fact, our caselaw strongly suggests the opposite result." (emphasis in original) ).

This rule is rooted not only in our precedent but in the bankruptcy code itself. It is expressly identified in 11 U.S.C. § 522(a)(2), which defines the "value" of exemptions for purposes of § 522 as "fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate." See id. Amici assert that this definition of value applies only to the federal exemptions listed in § 522(d) and lien avoidance in § 522(f) and not to state law exemptions that may be claimed pursuant to § 522(b)(3)(A), because the term "value" is not used in § 522(b)(3)(A). We need not decide whether Amici are correct on this point, because 11 U.S.C. § 541(a)(1) makes clear that "all legal or equitable interests of the debtor in property" transfer to the bankruptcy estate "as of the commencement of the case ." Id. (emphasis added). This transfer of interest is subject to the debtor's exemptions under § 522(b)(1), but the reference point for such exemptions is the commencement of the bankruptcy action. Following this transfer, all "[p]roceeds, product, offspring, rents, or profits" enure to the bankruptcy estate. Id. § 541(a)(6). This includes the appreciation in value of a debtor's home. E.g. , Schwaber v. Reed (In re Reed ), 940 F.2d 1317, 1323 (9th Cir. 1991) (interpreting 11 U.S.C. § 541(a)(6)"to mean that appreciation enures to the bankruptcy estate, not the debtor"). Accordingly, whether claiming federal or state law exemptions, the value of the exemption is fixed by reference to the date of the filing of the bankruptcy petition.

IV.

However, Wilson and Amici assert that a closer look at the facts underlying earlier Ninth Circuit precedent reveals that we have consistently allowed debtors to benefit from the post-petition appreciation of their homestead.¹ We have not; let us explain.

The first set of cases cited by Wilson and Amici involved California's homestead statute, which differs in material respects from Washington's statute. Under California law, every debtor is entitled to claim an exemption with a fixed dollar value, based on demographic criteria—not home equity. See, e.g. , Alsberg v. Robertson (In re Alsberg ), 68 F.3d 312, 314 (9th Cir. 1995) ; Cal. Civ. Proc. Code § 704.730.² By contrast, Washington applies a sliding scale in which "the homestead exemption amount shall not exceed the lesser of (1) the total net value of the [homestead] ... or (2) the sum of one hundred twenty-five thousand dollars...." Wash. Rev. Code § 6.13.030 (emphasis added).

In both California and Washington, the value of the homestead must be fixed as of the date of the bankruptcy petition. In California, the value of the homestead is always a defined statutory figure. See Cal. Civ. Proc. Code § 704.730. However, in Washington, the value is tied to the equity in the debtor's home as of the date of the filing of the petition. See Wash. Rev. Code § 6.13.030. Because the value that can be claimed in California is determined by demographic criteria, the homestead amount claimed at filing may exceed home equity on that petition date. See Alsberg , 68 F.3d at 313–14 (noting that under California law "in effect at the time of filing [the debtor] was entitled to claim a homestead exemption of $45,000 on the residence" where the home equity at the time of filing was only $33,875). If the home subsequently appreciates, it enures to the California debtor up to the amount she was entitled to claim under California law on the petition date . See id. at 313–15 (affirming the BAP's determination that, upon the sale of the home, the California debtor was entitled to the full $45,000 exemption even though the equity at the time of the filing was less than this amount). Accordingly, our cases (that appear to allow California debtors to obtain post-petition appreciation) have merely allowed the debtors to receive the full value of the homestead exemption that they were entitled to claim as of the petition date . See, e.g. , id. ; Hyman , 967 F.2d at 1321.³

Applying Washington law, Wilson is again entitled to the full value of the homestead exemption she could legally claim as of the petition date. However, Washington, unlike California, limits a debtor's exemption to the equity in her home. Here, there is no dispute that the "net value" of Wilson's home at the time she filed bankruptcy was the $3,560. That amount was all that Washington's exemption statute permitted her to exempt. The fact, that some debtors in our California cases were permitted to exempt more than the equity in their homes on the date of their bankruptcy petitions, does not establish Wilson's entitlement to do the same in Washington. Each state is entitled to set the parameters for its homestead exemption, but in all cases a debtor is limited to the value that may lawfully be claimed on the petition date.

Wilson and Amici next cite Klein v. Chappell (In re Chappell ), 373 B.R. 73 (9th Cir. BAP 2007), aff'd sub nom. In re Gebhart , 621 F.3d 1206. In Chappell , the BAP identified the rule that we reaffirm here, noting that "exemptions are determined on the date of the bankruptcy and without reference to subsequent changes in the character or value of the exempt property." Id. at 77 (alterations in original omitted) (quoting 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) ). The issue in Chappell did not involve the debtor's entitlement to post-petition appreciation up to the statutory maximum, because the trustee had waived that issue. Id. at 78, 82. The case instead involved whether the bankruptcy...