Elliott v. Weil (In Re Elliott)
523 B.R. 188
9th Cir. BAP2014Background
- Edward Elliott filed Chapter 7 on Dec 1, 2011, listed a Hiawatha Street address, and did not disclose ownership of the Buckingham Property or certain judgment creditors; he received a discharge and the case was closed.
- Three weeks after discharge (Mar 26, 2012) a corporation he controlled (LWI) quitclaimed the Buckingham Property to Elliott; earlier transfers showed Elliott’s long-standing connection to the property.
- Judgment creditors discovered the transfers, moved to reopen the case, and the case was reopened; Elliott later amended schedules to list the Buckingham Property and claimed a homestead exemption under Cal. Civ. Proc. Code § 704.730(a)(3).
- Trustee objected, arguing Elliott hid the asset and claimed the exemption in bad faith; the bankruptcy court sustained the objection solely on bad-faith grounds and denied the exemption.
- While this appeal was pending, the Supreme Court decided Law v. Siegel, which limits courts’ equitable power to deny or surcharge exemptions absent statutory authority; additionally, the trustee successfully recovered the Buckingham Property and the bankruptcy court revoked Elliott’s discharge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Law v. Siegel abrogates Ninth Circuit authority to deny exemptions for debtor bad faith | Elliott: Law v. Siegel prevents denial of exemption based on bad faith | Trustee: Ninth Circuit precedent allowed denial for bad faith; Law does not affect statutory exceptions | Held: Law v. Siegel abrogates judge-made bad-faith exception; courts may not deny or bar amended exemptions for bad faith absent statutory basis |
| Whether Elliott’s prepetition transfers destroyed his homestead entitlement under California law | Trustee: Elliott lost declared homestead by transferring title prepetition; no entitlement | Elliott: Claimed residency and prior homestead filing support exemption | Held: Declared (Article 5) homestead was destroyed by prepetition transfers and inapplicable to bankruptcy forced-sale context; inquiry must proceed under automatic (Article 4) homestead standard |
| Whether Elliott satisfied continuous-residency requirement for automatic homestead under Cal. law | Elliott: He resided at Buckingham and qualifies for automatic homestead | Trustee: Record lacks evidence of continuous residency; he claimed a different petition address | Held: Record is insufficient; remanded for factual findings on continuous residency and whether the property is estate property |
| Whether any statutory Bankruptcy Code limitation bars Elliott’s exemption (e.g., § 522(g)) | Elliott: § 522(g) inapplicable because trustee did not recover property | Trustee: Trustee recovered the property under § 542; § 522(g)(1) therefore limits Elliott’s exemption | Held: Trustee recovered the property; § 522(g)(1) may bar Elliott from claiming the exemption — bankruptcy court should consider this on remand |
Key Cases Cited
- Law v. Siegel, 134 S. Ct. 1188 (2014) (Supreme Court: courts lack equitable power to surcharge or deny exemptions for debtor bad faith absent statutory authority)
- Martinson v. Michael (In re Michael), 163 F.3d 526 (9th Cir.) (Ninth Circuit: permitted denial of amended exemptions for debtor bad faith; later superseded by Law v. Siegel)
- Doan v. Hudgins (In re Doan), 672 F.2d 831 (11th Cir. 1982) (formulated test for denying late exemption amendments for bad faith or creditor prejudice)
- Schwab v. Reilly, 560 U.S. 770 (2010) (Supreme Court: all debtor assets become property of estate subject to exemptions)