494 B.R. 502
Bankr. C.D. Cal.2013Background
- Debtor Floretta Wilson filed Chapter 7 on Oct 16, 2012; schedules listed two parcels: Hesperia Property and Los Angeles Property, each allegedly underwater, with no exemptions claimed at petition.
- Trustee filed an Objection to Debtor’s Amended Claims of Exemption on May 6, 2013, arguing exemptions may not exist as of petition date and may exceed the maximum allowed under CCP 703.140(b)(1) and (b)(5).
- Debtor amended Schedule C on Apr 5, 2013 to claim exemptions totaling $26,328 under CCP 703.140(b)(5).
- Trustee discussed and proposed short sales under Section 363 to recoup funds for the estate, potentially allowing carve-outs for lenders; Debtor claimed exemptions should be paid from sale proceeds after closing.
- Hearing occurred Jun 19, 2013; court held exemptions valid and attached to the properties, but limited the total wildcard exemption to $23,350, requiring Debtor to file a further amended Schedule C within 30 days to reduce the claimed exemption; failure to amend results in trustee paying the then-current exemption amount on the first sale and applying the reduction to the second.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are amended exemptions valid when claimed post-petition? | Trustee argues exemptions not available at petition. | Wilson may amend if exemptions attach to estate property. | Exemptions valid in attachment despite timing; amount can be limited. |
| What is the correct amount of the wildcard exemption? | Trustee contends max wildcard is $23,350. | Debtor's claimed $26,328 is permissible. | Wildcard exemption capped at $23,350; Debtor must amend Schedule C accordingly. |
| Do exemptions survive a 363 sale and attach to sale proceeds? | Trustee seeks to secure proceeds net of exemptions to satisfy creditors. | Exemptions attach to estate property and to sale proceeds. | Exemptions attach to sale proceeds; funds derived from estate sales are subject to exemptions. |
| Were there bad-faith or prejudice considerations for withholding exemptions? | Trustee alleged potential bad faith; argued timing issues. | No evidence of bad faith; issues waived; objections not proven. | Bad faith/ prejudice issues waived; no successful challenge based on bad faith. |
| What must Debtor do to reflect the amended exemption amount? | N/A | Amend Schedule C to reduce exemptions. | Debtor must file amended Schedule C within 30 days of order; otherwise exemptions paid as stated. |
Key Cases Cited
- In re Arnold, 252 B.R. 778 (9th Cir. BAP 2000) (discretion to disallow amended exemptions requires bad faith showing)
- In re Nicholson, 435 B.R. 622 (9th Cir. BAP 2010) (bad faith burden on objection to exemptions; preponderance standard)
- In re Hyman, 967 F.2d 1316 (9th Cir. 1992) (exemption availability as of petition date; value of property not sole issue herein)