Zibman v. Tow

• Decision Date: 28 September 2001
• Docket Number: No. 00-20898,00-20898
• Parties: (5th Cir. 2001) The Matter of: MICHAEL ZIBMAN; JAMIE BAILEY ZIBMAN, Debtors. MICHAEL ZIBMAN; JAMIE BAILEY ZIBMAN, Appellees, v. RODNEY D. TOW, Trustee, Appellant
• Court: U.S. Court of Appeals — Fifth Circuit

Page 298

268 F.3d 298 (5th Cir. 2001)

The Matter of: MICHAEL ZIBMAN; JAMIE BAILEY ZIBMAN, Debtors.

MICHAEL ZIBMAN; JAMIE BAILEY ZIBMAN, Appellees, v. RODNEY D. TOW, Trustee, Appellant.

No. 00-20898

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

September 28, 2001

Appeal from the United States District Court for the Southern District of Texas

Before JOLLY, WIENER, and SMITH, Circuit Judges.

JACQUES L. WIENER, Jr., Circuit Judge:

Appellant Rodney Tow, Trustee, appeals the order of the United States District Court affirming the final order of the United States Bankruptcy Court for the Southern District of Texas. The Bankruptcy court's order denied the Trustee's objection to the claim of exemption for proceeds from the pre-petition sale of the homestead filed by Appellees, Debtors Michael and Jamie Zibman, holding, inter alia, that because the Zibmans' bankruptcy petition was filed during the six months in which proceeds from the sale of a homestead enjoy protection from creditors under Texas law, the proceeds remained permanently exempt from the bankruptcy estate. Because the facts and the law applicable on the date that a petition for bankruptcy is filed determine the exemptions available to a debtor, and because the 6-month time limit is an integral feature of Texas's statutory exemption for proceeds from the sale of a homestead, we reverse the district court's order, render judgment for the Trustee, and remand this matter to the bankruptcy court for continued proceedings consistent herewith.

I. Facts and Proceedings

The facts in this case are simple and basically uncontested. The Zibmans owned two jewelry stores in Texas, one in San Antonio, and one in Houston. In 1998, they began having financial difficulty, and in October 1998, they closed the San Antonio store. Michael moved to Massachusetts to work in the jewelry business, while Jamie remained in Texas to manage their Houston store. On November 27, 1998, the Zibmans sold their Houston home and placed the proceeds from the sale ($120,665.23) in a general, unsegregated account that already held approximately $8,500.¹ In December 1999, the Zibmans closed the Houston store, and on February 5, 1999, Jamie moved to Massachusetts to join Michael. Four days later, on February 9, 1999, the Zibmans filed for bankruptcy protection under Chapter 7, claiming as exempt the full amount of the proceeds from the sale of their Houston homestead. On the same day, the Zibmans moved into a townhome in Massachusetts under a 6-month lease. The Zibmans both testified that they had no intention of reinvesting the proceeds in a Texas homestead within six months following the date of the sale or in the foreseeable future, and they did not, in fact, purchase another Texas homestead within the 6-month period.

In May 1999, just over six months after the Zibmans had sold their home, the Trustee objected to the Zibmans' claimed exemption of the sale proceeds on the alternative grounds that (1) under Texas law, the proceeds from a homestead sale that have not been reinvested in another Texas homestead within six months after the sale cease to be exempt from creditors' claims; and (2) the Zibmans had waived the exemption of the proceeds by abandonment and by commingling the proceeds with other funds. The bankruptcy court and, on appeal, the district court, relied on the "snapshot" rule² to allow the exemption as permanent, that is, no longer subject to automatic expiration upon failure to reinvest within six months. The court also held that the debtors had not waived the exemption as of the date the petition was filed either through abandonment or by commingling the sale proceeds with other funds. The Trustee timely appealed the district court's order affirming the bankruptcy court.

II. Analysis

A. Jurisdiction and Standard of Review

District courts' jurisdiction to hear appeals in bankruptcy cases encompasses final judgments, orders, and decrees, as well as certain interlocutory orders and decrees.³ Courts of appeals, in turn, have jurisdiction to hear bankruptcy appeals, but the appellate courts' jurisdiction is limited to "all final decisions, judgments, orders, and decrees" of district courts or a bankruptcy appellate panel.⁴ An order that grants or denies an exemption is deemed a final order for the purpose of 28 U.S.C. § 158(d).⁵ Determination whether an exemption from the bankruptcy estate exists is a question of law, which we review de novo.⁶

B. Exemption of Proceeds from the Sale of a Homestead under Texas Law

The bankruptcy and district courts determined that the Zibmans' filing of a bankruptcy petition during the 6-month period in which proceeds from the sale of a homestead enjoy protection from creditors under Texas law froze the exemption as it existed on the date of filing. These courts reasoned that, on that one day, the exemption was in existence, and subsequent events -- here, the expiration of the balance of the 6-month period without reinvesting the proceeds -- could not retouch the snapshot. The Trustee contends that this determination was error because the 6-month limit of the exemption for proceeds is an integral feature of the Texas law "applicable on the date of the filing of the [bankruptcy] petition."⁷ Therefore, reasoned the Trustee, this essential element of the exemption must continue in effect even during the pendency of a bankruptcy case. We agree with the Trustee.⁸

Under the Bankruptcy Code, the commencement of a bankruptcy case creates an estate comprising all legal and equitable interests in property (including potentially exempt property) of the debtor as of that date.⁹ The debtor may have certain property exempted from the bankruptcy estate by electing to take advantage of either the federal exemption provisions in the Bankruptcy Code or those provided under state law.¹⁰ As to the state-law alternative, the Bankruptcy Code provides the exemption for

any property that is exempt under...State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place....¹¹

As the Supreme Court noted in Owen v. Owen,¹² "[n]othing in subsection (b) [of § 522] (or elsewhere in the Code) limits a State's power to restrict the scope of its exemptions; indeed, it could theoretically accord no exemptions at all."¹³ Any exemptions claimed, however, are determined by the facts and the law as they exist on the date of filing the bankruptcy petition.¹⁴ This focus on the status as of the date of filing is commonly referred to as the "snapshot" approach to determining the extent of the bankruptcy estate and the scope of the exemptions.

When the Zibmans filed their bankruptcy petition on February 9, 1999, they exercised the § 522 option and elected to claim exemptions offered by Texas state law. Now as in February of 1999, Texas law provides a homestead exemption, as follows:

41.001. Interests in Land Exempt from Seizure

(a) A homestead...[is] exempt from seizure for the claims of creditors except for encumbrances properly fixed on homestead property.

....

(c) The homestead claimant's proceeds of a sale of a homestead are not subject to seizure for a creditor's claim for six months after the date of sale.¹⁵

As noted above, the Zibmans sold their Texas homestead in late November 1998, and filed for bankruptcy just over three months later, in early February 1999. When, by May 1999, the 6-month statutory protection period had expired without the Zibmans' having reinvested their homestead sale proceeds in a new Texas homestead, the Trustee objected to the exemption of the proceeds. In rejecting the Trustee's objection, the bankruptcy court stated that, "[o]n the petition date, these funds were exempt. Post petition acts or failures to act does [sic] not effect [sic] the exempt status."

In reaching its conclusion, the bankruptcy court cited In re Harlan,¹⁶ a 1983 Bankruptcy Court case that also involved the filing of a bankruptcy petition during the 6-month period in which proceeds from the sale of a homestead continued to enjoy protection under the Texas statute. The Harlan court in turn relied on White v. Stump¹⁷ to arrive at its holding that "the debtors' homestead proceeds were exempt on the date that they filed their ... petition ... because their petition was filed within six months of the date of the sale of their homestead[,]" and that "because the substantive rights of the parties were fixed on the date of the filing of the petition the proceeds must, therefore, be allowed as exempt, regardless of what use the debtors might make of the proceeds after the date of the filing of their petition."¹⁸ As the following analysis will show, White v. Stump introduced the "snapshot" theory, but both courts misapplied the holding of White to this fact pattern. A later Supreme Court case, Myers v. Matley,¹⁹ illustrates the appropriate refinement of White when the state law in question includes a condition on its application.

In Myers v. Matley, the Supreme Court refined White's snapshot principle, analyzing a slightly more complex Nevada state law situation. As in White, the state law provided that either member of a married couple could file a declaration to create a homestead exemption, and, as in White, the debtors attempted to file the declaration after a petition in bankruptcy was filed against the debtor. The Myers Court did not blindly apply White with a broad brush and deny the debtors' attempt to file the declaration, however. Instead, it reviewed Nevada law and discovered that "the settled law of the State entitles the debtor to his homestead exemption if the selection and recording occurs at any time before actual sale under execution." The Court linked to this the observation that "under the theory of the present [Bankruptcy]...