Diaz v. Kosmala (In Re Diaz)
547 B.R. 329
| 9th Cir. BAP | 2016Background
- Debtor Andy Diaz filed Chapter 7 in November 2013 after severe aneurysms in 2011 left him disabled; he later lived with his mother across the street while relatives occupied the Fullerton property (the Property).
- Diaz initially claimed California wildcard exemptions, then amended to claim the automatic homestead exemption under Cal. Civ. Proc. Code § 704.730(a)(3) (disabled-claim amount $175,000).
- The chapter 7 trustee (joined by a creditor/former mother‑in‑law) objected, arguing Diaz did not reside in the Property on the petition date and any absence was not temporary or supported by intent to return.
- Competing declarations: relatives and creditor asserted Diaz lived with his mother and was only a visitor at the Property; Diaz and family members submitted declarations and medical letters asserting he resided at and used the Property, retained address/mortgage/utility ties, and intended to live there.
- Bankruptcy court granted the trustee’s motion disallowing the homestead exemption, reasoning Diaz was not living in the Property at filing and relatives benefited; court focused on physical occupancy and duration of absence rather than debtor’s intent.
- BAP vacated and remanded, holding the bankruptcy court applied an incorrect legal standard by emphasizing physical occupancy and duration over the debtor’s intent to reside at the time of filing; remand to develop record on intent and apply California law burden rules.
Issues
| Issue | Plaintiff's Argument (Diaz) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Whether Diaz was entitled to California automatic homestead exemption | Diaz contends he resided in the Property on the petition date or at least intended to return; evidence includes address, mail, mortgage/utilities, personal effects, medical letters | Trustee contends Diaz did not physically reside at the Property on filing; absence was not temporary and lacked foreseeable prospect of resuming occupancy; relatives benefitted | Court held bankruptcy court erred: physical occupancy is not dispositive; intent to reside on filing date is controlling; remand to develop record on intent |
| Proper legal standard for continuous residency under California homestead law | Intent to reside + physical facts determine residency; temporary absences do not automatically defeat homestead | Trustee treated rule as physical occupancy at filing required, with exception for temporary absences | BAP held California law requires inquiry into intent to reside; court misapplied law by focusing on physical absence and passage of time |
| Who bears burden of proof on exemption objection | Diaz relies on presumptive validity of claimed exemption and federal Rule 4003(c) framework | Trustee argues state law allocation (California places burden on claimant) applies post-Raleigh and debtor should bear burden | BAP concluded where state statute allocates burden to debtor, state allocation governs; Rule 4003(c) does not alter that allocation (following recent bankruptcy court decisions) |
| Whether factors like debtor’s disability, amount claimed, or family benefit are relevant to eligibility | Diaz argues these factors do not negate entitlement if intent present | Trustee emphasized disability, large exemption amount, and relatives’ benefit to challenge credibility of residency claim | BAP determined such factors are not legally relevant to the intent inquiry; court must focus on evidence of intent to reside on filing date |
Key Cases Cited
- Schwab v. Reilly, 560 U.S. 770 (Sup. Ct.) (bankruptcy estate includes debtor’s interests; exemptions claimed under state law are applied at petition date)
- Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193 (9th Cir.) (bankruptcy exemptions fixed at petition filing; petition constitutes hypothetical levy)
- Preblich v. Battley, 181 F.3d 1048 (9th Cir.) (order denying exemption is final and appealable)
- Carter v. Anderson (In re Carter), 182 F.3d 1027 (9th Cir.) (objecting party bears burden to prove exemption improper; presumption of validity for claimed exemptions)
- Kelley v. Locke (In re Kelley), 300 B.R. 11 (9th Cir. BAP) (physical occupancy and intent are relevant; residency inquiry under California law)