In re: Rosalinda T. Buenviaje
CC-16-1347-TaFC
| 9th Cir. BAP | Mar 10, 2017Background
- Debtor Rosalinda Buenviaje filed Chapter 11 and listed a Chase bank account (the “SSI Account”) containing $30,000, which she claimed as exempt under Cal. CCP § 703.140(b)(10)(A).
- The parties agree the SSI Account contained only Social Security proceeds deposited before the petition date.
- Appellants objected arguing § 703.140(b)(10)(A) exempts only the right to receive future Social Security payments, not funds already received and deposited.
- Debtor argued the state exemption covers the funds and alternatively invoked 42 U.S.C. § 407(a) to exclude Social Security proceeds from the bankruptcy estate.
- The bankruptcy court overruled the objection, reasoning the state statute did not limit protection to future payments and that the funds were segregated Social Security benefits.
- The BAP affirmed, but on different grounds: it held § 407 bars inclusion of past and future Social Security proceeds in the bankruptcy estate, so no estate property required exemption; it also noted the exemption objection may have been untimely.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether funds already received and deposited in debtor's account are excluded from the bankruptcy estate by 42 U.S.C. § 407 | Buenviaje: § 407 removes Social Security proceeds (past and future) from the estate, so no exemption needed | Appellants: § 407 does not preclude inclusion; state exemption statute does not cover traceable proceeds | Held: § 407 bars forced inclusion of past and future Social Security proceeds in the estate; funds never became estate property |
| Whether CCP § 703.140(b)(10)(A) exempts funds traceable to Social Security payments received prepetition | Buenviaje: § 703.140(b)(10)(A) protects moneys in account as Social Security benefits | Appellants: The statutory text exempts only the "right to receive" future payments; (b)(11) shows legislature knows how to cover traceable property | Held: Court found Appellants’ textual argument persuasive on its face but unnecessary to decide because § 407 excludes the funds; bankruptcy court’s textual rationale not adopted |
| Whether debtor waived reliance on § 407 by not claiming it on schedules | Buenviaje: No waiver—§ 407 creates an exclusion, not an exemption, so no schedule claim needed | Appellants: Failure to assert § 407 in schedules waives the defense | Held: No waiver—if § 407 applies the funds never enter estate and need not be claimed as exempt |
| Timeliness of Appellants’ exemption objection under Fed. R. Bankr. P. 4003(b) | Appellants: objection timely | Buenviaje: objection late | Held: Court noted objection likely untimely (filed 32 days after § 341(a) concluded) which, if relevant, would be harmless error; court did not definitively resolve timeliness because § 407 disposition made it unnecessary |
Key Cases Cited
- Carpenter v. Ries (In re Carpenter), 614 F.3d 930 (8th Cir. 2010) (§ 407 bars forced inclusion of past and future Social Security proceeds in bankruptcy estate)
- Schwab v. Reilly, 560 U.S. 770 (Supreme Court 2010) (debtors must disclose assets on schedules; general rule that estate comprises debtor's property under § 541)
- Hildebrand v. Social Security Admin. (In re Buren), 725 F.2d 1080 (6th Cir. 1984) (Bankruptcy Code did not impliedly repeal § 407; court may not compel Social Security payments to a trustee)
- Owen v. Owen, 500 U.S. 305 (Supreme Court 1991) (exemptions remove assets from the estate)
- In re Treadwell, 699 F.2d 1050 (11th Cir. 1983) (contrasting view on the interaction of § 407 and bankruptcy law)
- Bernard v. Coyne (In re Bernard), 40 F.3d 1028 (9th Cir. 1994) (amendment to schedules restarts objection period only as to added or changed exemptions)