In re: William Guthrie
SC-15-1390-FYJu
| 9th Cir. BAP | Jan 31, 2017Background
- Debtor William Guthrie bought a house in May 2012; he quitclaimed title to his then-spouse Christine in December 2012 for no consideration.
- Guthrie had significant IRS liability and later admitted transferring the house to avoid IRS levy and because he believed he could not pay taxes as they came due.
- Guthrie filed pro se chapter 7 schedules in May 2015 initially claiming the house and homestead exemptions but omitted that legal title was held by Christine; he amended schedules several times.
- After the trustee investigated, filed an application to employ counsel to pursue avoidance claims, and indicated he would object to the exemption, Christine reconveyed the property to Guthrie about a week later.
- Trustee objected under 11 U.S.C. § 522(g), arguing the transfer was voluntary and avoidable under California UFTA and that the trustee’s actions caused recovery of title; the bankruptcy court sustained the objection.
- On appeal the BAP affirmed, holding the trustee had “recovered” the property via actions that threatened avoidance powers (Glass), so § 522(g) barred Guthrie’s exemption despite any equitable interest he retained under state law.
Issues
| Issue | Guthrie's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether the trustee "recovered" the property under § 522(g) so as to bar Guthrie's exemption | Trustee did not actually recover the property; reconveyance was voluntary and unrelated to trustee actions | Trustee’s application to employ counsel and objection threatened avoidance powers and coerced reconveyance, constituting recovery | Court held trustee’s actions were "some action" that led to reconveyance; recovery occurred under Glass; § 522(g) applies |
| Whether a voluntary prepetition transfer bars exemption under § 522(g)(1)(A) | Guthrie argued he did not conceal and retained equitable interest; state law allows exemption in equitable interest | Transfer was voluntary and thus meets § 522(g)(1)(A) which, conjunctively with (B), must be met to permit exemption | Court held transfer was voluntary; conjunctive requirements mean concealment irrelevant once transfer was voluntary; exemption barred |
| Whether Guthrie’s retained equitable interest under state law overcomes § 522(g) | Guthrie relied on California law allowing homestead in equitable interest despite fraudulent conveyance | § 522(g) is a statutory limitation on exemptions and overrides state-law entitlement once its conditions are met | Court held § 522(g) controls; state-law equitable interest cannot overcome an applicable § 522(g) disallowance |
| Whether the trustee needed to commence formal adversary proceedings to recover property for § 522(g) purposes | Guthrie argued formal avoidance suit was required; absent suit, no recovery | Relying on Glass, trustee need not file suit; sufficiently coercive "some action" suffices | Court followed Glass: filed application/objection sufficed; formal adversary not required |
Key Cases Cited
- Glass v. Hitt, 60 F.3d 565 (9th Cir. 1995) (trustee’s filing that threatened avoidance powers can constitute the "recovery" that triggers § 522(g))
- In re Elliott, 544 B.R. 421 (9th Cir. BAP 2016) (once § 522(g) applies, state-law exemption analysis is unnecessary)
- Putnam Sand & Gravel Co. v. Albers, 92 Cal. Rptr. 636 (Cal. Ct. App. 1971) (fraudulent conveyance does not necessarily extinguish debtor’s equitable interest permitting homestead claim)