590 B.R. 19
Bankr. D. Me.2018Background
- Debtor Michael Rockwell filed Chapter 13 in 2015 owning and living at 24 B Street, South Portland, Maine; he claimed a $47,500 Maine homestead exemption.
- The court approved sale of the homestead; after closing (Mar. 6, 2017) Rockwell received $47,500 as exempt proceeds and $4,182.87 went to the Chapter 13 trustee.
- Rockwell spent $18,806.23 of the proceeds pre-conversion, and converted his case to Chapter 7 on Aug. 7, 2017, leaving $28,693.77 in his possession at conversion.
- Maine law (14 M.R.S.A. § 4422(1)(C)) exempts homestead sale proceeds for six months for purposes of reinvesting in a residence (a “vanishing” or temporal exemption).
- The Chapter 7 trustee objected post-conversion, arguing the six-month reinvestment period expired (post-petition) and the proceeds became estate property; Rockwell argued the exemption fixed at filing/conversion and cannot vanish post-petition.
Issues
| Issue | Rockwell's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether a state "vanishing" homestead-proceeds exemption that includes a post-sale reinvestment deadline can expire post-petition so the proceeds revert to the Chapter 7 estate | Exemption rights are fixed by the bankruptcy filing/convert date; post-petition passage of the statutory reinvestment period cannot defeat an exemption claimed at filing | The Maine six-month reinvestment condition is part of the state exemption; failure to reinvest within six months (even if that date falls after filing/conversion) terminates the exemption and makes proceeds estate property | Court applied the complete "snapshot" rule: exemption fixed as of filing/convert; trustee's objection overruled — the $28,693.77 remained exempt |
| Effect of conversion from Chapter 13 to Chapter 7 on property/exemption status | Conversion does not change the petition date; property in debtor's possession at conversion is the Chapter 7 estate and exemptions claimed remain governed by the petition date circumstances | Trustee sought to treat the post-conversion lapse of the six-month period as restoring proceeds to the estate | Court held § 348 preserves the filing date as the reference; property in debtor's possession at conversion (here $28,693.77) was subject to the exemption status determined as of the petition/convert framework |
| Whether § 522(c) and § 522(k) permit a post-petition expiration of an exemption | Exemptions once claimed are insulated from prepetition debts and most administrative expenses; allowing post-petition expiration would conflict with these Code protections | Trustee argued state law temporal limits govern and are part of the exemption definition on filing | Court found allowing post-petition expiration would conflict with § 522(c)/(k) and the bankruptcy framework; adhered to Cunningham and applied complete snapshot rule |
Key Cases Cited
- Owen v. Owen, 500 U.S. 305 (U.S. 1991) (property properly exempted is withdrawn from the estate)
- Schwab v. Reilly, 560 U.S. 770 (U.S. 2010) (exemptions support debtor's fresh start)
- Law v. Siegel, 571 U.S. 415 (U.S. 2014) (limits on making exempt property available to satisfy administrative expenses)
- Pasquina v. Cunningham (In re Cunningham), 513 F.3d 318 (1st Cir. 2008) (proceeds of homestead sale held exempt; exemptions not conditioned on post-petition events)
- Zibman v. Rhein, 268 F.3d 298 (5th Cir. 2001) (state temporal reinvestment condition can cause proceeds to lose exemption post-petition)
- Jacobson v. FNB Omaha (In re Jacobson), 676 F.3d 1193 (9th Cir. 2012) (proceeds subject to reinvestment condition can lose exemption if reinvestment does not occur)