Lowe v. DeBerry (In Re DeBerry)
884 F.3d 526
5th Cir.2018Background
- Debtor Curtis DeBerry filed Chapter 7 and listed his San Antonio home as a Texas homestead exemption; no objections were filed.
- Seven months after filing, the bankruptcy court authorized sale of the home; DeBerry sold it and did not reinvest proceeds in another homestead.
- DeBerry transferred sale proceeds to his wife and to his criminal-defense lawyers.
- The Chapter 7 trustee sued (adversary) claiming the proceeds lost exemption because they were not reinvested within Texas’s six‑month proceeds window.
- Bankruptcy court dismissed the trustee’s suit (holding proceeds remained exempt); the district court reversed. The Fifth Circuit reviewed the appeal.
- The panel considered In re Hawk (retirement-account withdrawal holding) and applied its reasoning to Texas homestead exemptions in Chapter 7.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (DeBerry/Appellants) | Held |
|---|---|---|---|
| Do proceeds from a homestead sold after a Chapter 7 filing lose exemption if not reinvested within six months? | Proceeds are subject to Texas’s six‑month "proceeds rule" and become estate property if not reinvested. | Homestead was owned and exempt at filing; exemption is fixed at petition and proceeds remain exempt even if sale occurs postpetition. | The Fifth Circuit held the proceeds remain exempt—reversing the district court and reinstating dismissal. |
| Does In re Hawk (retirement-account rule) control and apply to homesteads? | Hawk is distinguishable because it involved retirement accounts, not homesteads. | Hawk’s snapshot rule and reasoning apply equally to homestead exemptions owned at filing. | Court applied Hawk’s snapshot logic to homesteads and held it controls here. |
| Can the trustee use the proceeds rule to limit exemptions for property owned at filing? | Trustee contends the proceeds rule can limit exemptions postpetition. | Proceeds rule is an enlargement mechanism for prepetition sales; it should not shrink an unconditionally exempt interest owned at filing. | Court rejected trustee’s attempt to convert the proceeds rule into a limit on an unconditional exemption. |
| Do Chapter 13 authorities (e.g., Frost) govern Chapter 7 postpetition sales? | Trustee relied on Frost to support treating postpetition sales as part of estate. | Chapter 13 law differs: §1306 makes postpetition acquisitions estate property; Chapter 7 lacks similar provision. | Court distinguished Frost and held Chapter 7 treats postpetition conversion differently; Frost does not control. |
Key Cases Cited
- In re Hawk, 871 F.3d 287 (5th Cir.) (funds exempt at Chapter 7 filing remain exempt despite postpetition distributions and reinvestment windows)
- In re Zibman, 268 F.3d 298 (5th Cir.) (prepetition homestead sale proceeds lose exemption if not reinvested within six months)
- In re England, 975 F.2d 1168 (5th Cir.) (history and purpose of Texas homestead proceeds rule as allowing reinvestment in new homestead)
- In re Frost, 744 F.3d 384 (5th Cir.) (postpetition sale in Chapter 13; distinguished here because Chapter 13 treats postpetition acquisitions as estate property)
- In re Perry, 345 F.3d 303 (5th Cir.) (noting strong protection and liberal construction of Texas homestead law)
- In re Fonke, 321 B.R. 199 (Bankr. S.D. Tex.) (discussing uncertainty and problems of creating quasi-exempt property if exemptions could be eroded postpetition)