Hyman v. Plotkin (In Re Hyman)

MEYERS, Before VOLINN and PERRIS, Bankruptcy Judges.

OPINION

MEYERS, Bankruptcy Judge:

I Chapter

Joint debtors under 7 of the (“Code”) brought Code this ac- seeking their estate trustee declaratory judgment the debtors’ principal exempt residence was an asset longer property and no of the estate. From an granting Order the trial court Trustee, summary judgment in favor of appeal ensues. We AFFIRM. II

FACTS Hyman (“Hymans”) Irwin and Janice voluntary petition Chapter filed a They of the Code on November 1988. asset, principal listed their residence as an $415,000 stating its value to be and claim- ing exemption. Gary homestead Plotkin, (“Trustee”), did not within 30 either to the debtors’ asset valuation or to the claim. sought The Trustee later to sell the resi- presumably dence and for the estate retain any proceeds from the sale above the sum and the encumbrances exemption. Hymans adversary pro- initiated this

ceeding against judgment the Trustee for a declaring the residence to longer estate, asset no within the or in the alternative, declaring postpetition thаt all appreciation accrues benefit of the summary debtors. Trustee moved for granted and that motion was fol- lowing hearing, judgment being with the July entered physical III to a to a refers asset or asset; third, debtor’s such wheth- STANDARD OF REVIEW er both an asset with and non- summary judg The Panel reviews exempt equity to a reverts debtor or rather Corp., ments de re Two novo. S appreciation postpetition part whether is 240, Cir.1989); (9th F.2d 242 In re Softalk “proceeds” property; the of estate Co., 1328, (9th Publishing F.2d 856 1330 fourth, the es- whether Trustee is now Cir.1988); Orosco, 203, In re 93 B.R. challenging topped from the of stated value (9th 1988). summary A judgment Cir.BAP Hyman property. the may only if appears, be affirmed it after reviewing all evidence factual inferenc A. Surplus May Exist the Value light es in the oppos most favorable to the Property ing party, genuine are that there no issues of that moving party material fact and the ap Without benefit of a the formal is judgment entitled to as matter of law. praisal, Appellants the stated the value 28, Express Corp., In re Seaway $415,000. be They residence to main 912 F.2d 1125 tain consequently, surplus that no value aff'd (9th Cir.1990). California state law con exists for the because the the estate sum of questions involving trols substantive home encumbrances, exemption and homestead exemption rights. Peters, stead See In re $425,811.01. selling costs The is 401, (W.D.Tex.1988); 91 B.R. position predicated on is the listed encum Schneider, (N.D.Cal. 491-92 $278,107.20 $69,503.81, brances of be 1981). Anderson, See also In 824 F.2d $45,000 ing exemp added to the homestead (9th Cir.1987). $33,200, selling tion and costs calculated $45,000 eight at percent the value attrib

IV property. uted to selling The costs in, say debtors, must be added because DISCUSSION payment after of such costs would Hymans argue any do not that mate- any value estate realize from the sale. Rather, Appellants rial fact is at issue. Further, assert, without debtors statu legal arguments make a series of that build California, tory authority, “in or case that urged one another to their conclusion (8%) eight pеrcent Trustees ... subtract the Trustee not now sell the for costs of sale.” Hyman longer residence it is no because in, selling If the costs are not added part of the estate. however, available for the estate argue Appellants that since the $392,- any exceeding would be amount Trustee did within not (encumbrances totalling $347,611.01 611.01 valuation of their residence stated on the plus $45,000). the homestead filed, original schedules value Appellants’ Even own valuation disputed. They now be further contend $415,000, therefore, equity would exist physical dwelling was a itself The Trustee would thus validly claimed asset and since have the to administer the surplus there was no value in the asset at payment assure secured at creditors and time it reverted from the any sale the Trustee retain surplus Appel- estate the debtors. Hence the $45,000 paid estate above the to be lants conclude that the long- no to the debtors. er the or at Trustee’s to sell least that postрetition appreciation belongs eight The debtors’ assertions about the legal questions percent to them. Four supported by are thus are costs first, appeal: raised governing whether California statute sale of debtor is correct in assuming that no sur- homestead. 704.800 Section of the Code second, 1989) plus (West value existed in the property; provides CivilProcedure in per- $45,000 part: whether homestead tinent California (a) significance if If no is received at a sale of a lose its the Trustee is able to bid pursuant to a court order for prove that the valuation of the that exceeds the amount of the sale anywhere near the his evidence exemption plus any additional suggested. necessary satisfy amount all liens and proceed The debtors chose to under the property, including encumbrances 7; liquidation provisions Chapter as stat- not limited to attachment or but recently, “liquidation ed of the estate lien, the homestead shall not means sale of the real If estate.... [the sold and shall be released and is not proper- wanted to hold on to their debtors] thereafter to a court order for ty they sought reorganization should have upon subsequent application by sale Chapter 13.” Lindsey, Matter of period same creditor for a 189, (7th Cir.1987). 823 F.2d 191 year. one any requirement No mention is made of Exemp- B. The Homestead California selling that the costs also be exceeded for a Equity Rather than Refers accepted; only bid to be the encumbrances Physical Asset exemption and homestead are counted. figures by solely Based scheduled Appellants’ suggestion that home Appellants, which valued the residence protection physical prop stead attaches to $347,611 at with secured liens of erty rather than to a debtor’s economic $45,000, and a homestead interest in the is undermined equity conceded excess of all seсured Constitution, the California California approximately claims and interpreting homestead statutes and case $22,389. duty The Trustee had a to at- law. money” this tempt to “collect and reduce to concept are im- that some interests property of the estate and would be remiss creditors is en- mune from the reach of if he do so. 11 failed to See U.S.C. in the Constitution: shrined California 704(1). § law, protect, by Legislature “The shall Further, this Panel is bound portion from forced sale a certain customary practices assertions of of Trust- property of all heads homestead and other ees. It well can be added) (emphasis families.” Cal. Const. than be sold at far less administrative cost XX, statutory Art. Section 1.5. The $33,200. persuaded We are not that Cali- implementing provision ap- this scheme requires fornia law either the Trustee to pears at 704.710-.850 Cal.Civ.Proc.Code §§ eight percent withhold costs or that (West 1989) “[provide] protec- and is said selling costs are included in the sum that in the portion tion for a must exceeded under California Civil against creditors who seek debtor’s home Placing Procedure Code Section 704.800. by forced sale of the home.” satisfaction such a restriction on Trustee this Note, added). Exemptions (emphasis Un- practical case would in effect raise the Using Bankruptcy der the Code: Califor- $33,- exemption by an additional as a Medium nia’s New Homestead Law 200, contemplated by an effect not the Cali- 922, 938 Analysis, Calif.L.Rev. provisions. We focus on fornia homestead Aaron, (1984). R. See also aspect appeal in order to demon- (1989). Law Fundamentals 7.03 § grant strate that the context of a portion Hymans’ homestead accepting summary judgment, even $45,000. protection entitled to Cal.Civ. light facts on valuation in the most favor- legis- 704.730. The California debtors, Proc.Code they § able to the would not be course, ceiling lative on the value of an summary prevail. entitled to Of if like thоse of Minne- contrasts with statutes judgment in favor of the Trustee was not acreage place sota and Texas which rather appropriate and tried on the mer- this was its, regarding the use of than value limitations on discussion (1990); Tex. figures undoubtedly costs of sale tions. Minn.Stat. 510.02 See (1989) (val- Prop.Code Ann. 41.001-002 occurred, sions. Where a forced sale has §§ instances). ue limits in proceeds certain exemption, in this case $45,000, may not be reached creditors The “excess value” in a California home for a of six months. Cal.Civ.Proc. stead, the value above encumbrances and 704.720(b), permits Code 704.960. This §§ amount, always has been the debtor time to settle into a substitute Payne available to creditors. v. Cum dwelling. Mulhern, v. See Ortale 58 Cal. 426, (1905), mings, 146 Cal. 80 P. 620 861, 864, (1976); App.3d Cal.Rptr. example, the court stated: “The homestead Babcock, 205, Thorsby v. 36 Cal.2d upon may declared embrace an area even (1950). P.2d 863 greater in than the five-thousand-dol lar allowed.... Postpetition Appreciation C. Assets void, such a case the homestead is not but Non-Exempt Equity With Accrues proceedings ap- must be had ... the Estate Benefit of praisement prop and division or sale of the Postpetition appreciation accrues erty.” 146 Cal. at 80 P. 620. See also to the benefit of the estate. Section Berman, Cal.App.3d 1499, Kahn v. 541(a)(1) provides of the Code that a debt- (courts (1988) Cal.Rptr. 575 should assess comprised legal eq or’s estate is of all property prior ordering excess value of by uitable interests owned the debtor as of sale); Cal.Code Civ.Proc. 704.740-.850 §§ the commencement of the case. When (containing procedures executing on ex productive such assets become after the cess value above homestead filing, supplemented by the estate is all encumbrances); 595, H.R. No. 95th Con rents, “proceeds, product, offspring, and or gress, (1977), 1st Sess. 360-61 & U.S. Code profits of or from of the estate Cong. 1978, 5787, pp. Admin.News 6315- 541(a)(6). Hence, ...” Section wherе an 6317, (intention Congress of for the federal by asset the estate is sold “property may was that be ex proceeds the estate is entitled to the of that lien, empted even if it is to a but Calder, 200, (Utah sale. In re 94 B.R. portion prop the unencumbered (10th Cir.1990); 912 F.2d 454 In aff'd erty computing is to be- counted in Paolella, 974, (E.D.Pa.1988). re 85 B.R. purposes ‘value’ of the According legislative history of this exemption.”) section, “proceeds” is not to be defined as The cases could not come to other narrowly as in the Uniform ‍​‌​‌‌​‌​‌​‌​​‌​​‌‌‌​‌​​​​‌‌‌​‌​‌‌​​​‌‌​​​​​​​​‌‌‍Commercial logically possible conclusion. It 989, is S.Rep. Cong.2d Code. No. 95th Sess. explicit exemp- 82, reconcile the limitation on (1978); 595, H.R.Rep. Cong. No. 95th tion value a (1977), with notion that the Cong. 1st Sess. 368 U.S. Code & exempt except by requiring itself is 1978, 5868, pp. Admin.News 6323. The debtor to the estate reimburse for the ex- meaning result is a “exceedingly is Calder, cess value of a retained homestead dwell- supra, broad.” 94 B.R. at 201. ing. suggests No California case such a Some cases evidence a tension be Rather, by setting solution. a maximum 541(a)(6) provisions tween Section and the legislature can claimed the what be rec- 522(f)(1) prohibits judi of Section which a ognized property may subjected that the be impairing cial lien from an procedure to a forced sale. for such which the debtor otherwise would be enti forced sales is set forth in the discharge occurred, tled. Where a has statutes at Cal.Code Civ.Proc. 704.- §§ example, judicial and a lienor seeks execu 740-.850. exempted property tion on courts have held

Appellants’ error is to confuse policy asset valued as of the preserving family life and preventing filing petition any appreciation protection homelessness with specific be retained the debtor. a Such holding residence from protecting creditors. This distinction has the effect of an is underscored appreciating related statutory provi asset foreclosure and thereby enhancing policy appears the “fresh start” The dissent to be concerned property, that trustees will hold which bankruptcy e.g., law. In re Dvoroz does See not have equity realizable nak, 178, date (E.D.N.Y.1984); 38 B.R. filed, hoping gain advan (E.D.Pa.1982); Rappaport, re 19 B.R. 971 tage post-petition appreciation. This Walters, (S.D.W.Va.1981), 14 B.R. 92 certainly concern is unwarranted in this sub. nom BancOhio Nat. Bank v. aff'd case Appellants’ figures where the own Walters, (4th Cir.1984). 724 F.2d 1081 See reveal not inconsiderable Galvan, (9th also In re 110 B.R. 446 might gained Also, for the estate. 1990) (avoidance Cir.BAP of both secured duty has an affirmative to collect lien); portion judicial and unsecured money and reduce Herman, (9th 120 B.R. 127 Cir.BAP estate and to close the expedi estate as 1990). Any policy such fresh start is much tiously compatible as is with the best inter importance, however, reduced where the parties est of in interest. See 11 U.S.C. being actively is still adminis 704(1); Co., In re Riverside-Linden Inv. Moreover, tered. in California the debtor (S.D.Cal.1988), 85 B.R. aff'd protection has the described abovе of the 1989); B.R. 439 In re Afco “proceeds exemption” six months of Cal. Corp., (Utah 1986). Dev. 704.720(b) Civ.Proc.Code and 704.960. §§ Therefore, position a trustee is not in a Finally, argument the “reversion” raised unnecessarily delay liquidation of es Appellant accepted cannot be tate requires a statute like California’s which Further, if a debtor does become appraisal equity. to be made of the At concerned that a trustee act in derelic glance ap first the contention has much duty liquidate particular tion of and not peal. 522(Z) unequivocally Section states time, within a reasonable party that in objects, “unless a interest the debtor the requesting force issue property claimed as on such list is property pur trustee abandon the exempt.” It undoubtedly is also true that suant to 11 U.S.C. See B.R. exempted property ultimately must “re- 6007(b). Pauline, In In re 119 B.R. 727 debtor; in vest” the but this is inherent in (9th recently up the Panel statutory structure that legal vests “all held a requiring Chapter trial court order equitable or prop interests of the debtor in realty 7 trustee to market the homesteaded erty” in the estate at the commencement of period within a defined of time or it would 541(a)(1). the case. Code Section Hence case, be deemed abandoned. In that inas case, several cases state that claimed the instant an never filed objection to the upon as revests in the the claim. in When the debtor Pauline be any party object failure of to within a apparently came concerned over the incon specified Kretzer, period. e.g., See In re postures sistent of the trustee as to further (Nev.1985); 48 B.R. 587 Matter of proper administration of the homesteaded Wiesner, (W.D.Wis.1984); 39 B.R. 963 ty, petitioned he the trial court and re (W.D.Pa.1981). Berry, 11 B.R. providing ceived an order a deadline the eases, however, These should be inter- property. trustee to market the 119 B.R. preted simply accurately describing as two expedi at If the 727-28. trustee does not words, rules one sentence. In other the tiously property, market the the debtors 30-day period right fixes the to an always can file a motion to force a or sale requires tion and the statute as a whole abandonment. At the time the trustee the somehow revest. The presents approval, a sale for the trial court reversion, however, timing of the not can then consider if the benefits apparent by interplay the of these two estate are de minimis and should be bal rules; necessarily prior it is not to aban- disadvantage anced the to suf be by the immediately donment trustee or fol- having fered the debtors their to vacate lowing 30-day period. the residence. seeking case, require the context of a motion aban- the the hearing notice and

donment, potential evidence that no sale ments of Section 554 must be observed period within a reasonable time could an “abandonmеnt” to occur. Sierra estate, Switchboard, (“... provide supra benefit for the after 789 F.2d at 709 sale, paying costs of payoff the encum- there is no abandonment to without notice creditors”). brances and satisfaction of the allowed exemption, will no doubt deter- ground second preventing The an the mine final outcome. the estoppel of Trustee in the case instant objection is the between an to distinction Challenge D. The May Trustee the objec of an the existence and an Property Value tion to the valuation of Hymans The apparently never exemption. Only claim which debtors sought closing the former must within be made moved have the Trustee abandon the 4003(b) 30-day Also, dispute do property. the debtors meeting following of creditors. representations of the Trustee that he Allen, (N.M.1984). The two “expeditiously” acted after the Section types competing serve inter 341(a)hearing appraisal of the to obtain an gives рrompt ests: one debtor a determi ‍​‌​‌‌​‌​‌​‌​​‌​​‌‌‌​‌​​​​‌‌‌​‌​‌‌​​​‌‌​​​​​​​​‌‌‍Nonetheless, Hymans claim nation of his failure of the Trustee other allows creditors to obtain a valu fair valuation within Allen, the property. supra, ation of filing estops either the Trustee from Although objections B.R. at 40. retaining administrative control over the exemptions themselves should made as seeking residence or from take advan quickly possible, “[objections to val tage post-filing appreciation. uation, hand, on the other not be need Appellants’ argument legal for both fails completed with such nor expediency, logical reasons. required should creditor be out to rush first, legal grounds are two-fold: the debtor’s order protect that the entire value of the residence ini- property.” his interests Al tially len, came into the supra, debtor’s estate and was B.R. at 40. re Pau See In “impliedly Trustee; line, abandoned” supra, 727. But see In re second, 360, objections Tarrant, (Alaska 1982); and that the to еxistence 366 3 exemption (15th anof differ from to Bankruptcy Collier on II506.04[2] property subject 1990). of the valuation to an ed.

exemption claim limited in dollar amount. Logic any argument defeats found- also 541(a) Code,

Under Section the all estoppel equitable of ed on a claim of con- legal equitable of interests the debtor There the siderations. was no reason for belong to the object estate at the commencement Trustee to to the valid claim of a Thereafter, the case. exemption by Appellants. the the claiming remove some of the speak Hence the Trustee’s failure to was misleading under Section not a which communication on Woodson, (9th 610, n. Hymans rely 839 F.2d Cir. were entitled to 1988); v. Westing estopped. Sierra Switchboard therefore Trustee is not This Co. 705, Corp., supported by house Elec. 789 F.2d 708-09 conclusion the case of In re (9th Cir.1986). (9th in Golden, Cir.1986). Title is therefore F.2d Gold- “[ujnless beginning trustee- from the en sold his residence and filed thereafter intentionally bankruptcy, re- claiming abandoned or for ex- a homestead vested, generally emption proceeds title remains the trust sale. the house requires Abandonment ee. affirmative ac Under the California six-month reinvest- tion or some other evidence of intent the ment statute the claim validly debtor could Berg, trustee.” In re exemption pro- such a homestead if the 1984). During pendency purchase used to ceeds were a substitute dwelling. 704.720(b), Cal.Civ.Proc.Code estate There be time §§ limits day filing objec- 704.960. Since the last filing objections on exemption claims tions to the debtor’s claim fell 4003(b), Bankruptcy Rule but aban- period, within the six-month reinvestment governed by donments are Section 554 of object trustee did not to the debtor’s Code and homestead claim. specific contain no time restraints on the ability fully trustee’s administer estate When the debtor did reinvest property. The party burden is on the seek- sale, money from his house ing to fоrce an specific abandonment of argued proceeds had lost their property to take the initiative. Here the exempt status and therefore should be re- brought debtors have an action which is turned responded to the estate. Golden actually early directed toward an abandon- estopped that the trustee failing was ment of their residence and have failed to object to the homestead claim within the demonstrate that justify the facts would period. trustee, ruling six-month such an order. the court stated: Because the remained in ef- during period,

fect the six-month and the V trustee pro- had no to claim the CONCLUSION during period, ceeds we see no rea- Appellants’ requiring arguments son for notify that he fall before debt- or of the central fact yet Hy- a claim not in existence. California the Given clarity provisions requiring mans’ homestead rein- is limited to vestment, $45,000. Golden could not have reason- Their exemp- entitlement to this ably upon relied the trustee’s tion is disputed. silence as Even on the debtors’ permanent an indication of exemption. own surplus valuation exists if disregarded. costs are 789 F.2d at 701. The Trustee should be allowed to make suggests grant The dissent appropriate arrangements for sale within a summary judgment “in effect” allows the time; reasonable resulting trustee claim in proceeds that exceed the encumbrances untimely manner. This misconstrues plus belong to the estate. ruling appeal. The debtors filed a complaint to have their AFFIRMED. “home” declared exempt based on the failure file to their VOLINN, Bankruptcy Judge, goal

claim. Their “in effect” is not dissenting: judicial have recognition of their tion, but also to force the trustee to aban- FACTS don the entire though even he The bankruptcy peti- debtors filed their would like to administer the in asset order 21, They tion on November listed equity to realize for the benefit of the their home as an asset and claimed a home- estate. The dissent would have us rule stead in it. The home was stat- by that abandonment is mandated a failure $415,000. ed to be valued at They also timely object of the trustee to an selling calculated the costs of the home at tion claim he challenge. has no cause to $415,000 $33,200. eight percent of or The By simply agreeing a valid claim of debtors listed encumbrances exemption, an estate is not forced to aban- $278,107 $69,503 property of for a total don a valuable asset. $347,610. foregoing of The total added to

This, then, $45,- is the crux of our decision. the debtors’ homestead reject We attempt $425,810 the debtors’ to use the 000 comes to which exceeds the by regard concession made in property, therefore, stated value of the in exemption, claim of a leaving to the debtors’ view no then force the trustee to abandon valuable in creditors the event of forced sale. How-

ever, $33,200 (eight if the person filing costs attorney the list and the $415,000) percent of were not added to the person. for such foregoing total of encumbrances plus foregoing, Based on the the trustee had exemption, equity, then there would be an 27, days until 30 after December 1988with- $22,390 presumably, of available to credi- objection which to file an to the debtors’ ($415,000 $392,610). tors minus exempt claim of property. That date indicated, bankruptcy, as was filed 26, January would have been 1989. No date, on November 1988. On that objection such was filed the trustee or debtors’ homestead schedule any party in interest. pursuant and claim were filed to 11 U.S.C. 24, 1989, March On the debtors filed a 522(i)1 provides as follows: complaint declaratory seeking relief (l) proper- The debtor shall file a list of have their exempt. home declared as ty exempt that the debtor claims as un- summary judgment. trustee moved for (b) der If subsection section. alia, alleged The trustee inter that an or- list, file debtor does not such a der authorizing employ of the court him to dependent may of the debtor file such a 30, 1989; January broker was entered on list, may property exempt claim broker, an affidavit from the real estate from of the estate on behalf of Barbour, prop- Judith stated the homestead party debtor. Unless interest $610,000 erty to be worth between objects, claimed on such list $650,000, analysis being a market attached exempt. to the responded, affidavit. The debtors meeting The date set for the first attaching Bluman, by, Gary a declaration 341(a) pursuant creditors to Sec. was De- appraiser, valuing at be- cember 1988. The court its Order $405,000 $440,000, concluding tween Meeting For Of Creditors Combined With was a conservative estimate Stay, Notice Thereof And Automatic Of Thus, of value.2 there was a substantial fixed certain time limits as to various dispute as to value. The court neverthe- including objection events a time limit for granted less the trustee’s motion for sum- exemptions. The order stated: effect, mary judgment holding, in time, аny Unless the court extends the precluded objecting trustee was not from to the claim of claim after the time fixed (Schedule B-4) must be filed 4003(b); Rule that the debtors could not THE TIME FIXED PURSUANT TO expenses encumbrances, add of sale to the 4003(B) (sic). BANKRUPTCY RULE and that post- the trustee was entitled to 4003(b) provides: accretion value to the home. Objections (b) Exemp- Claim tions. The trustee or creditor ISSUES objections file to the list of There are various issues which have been claimed as within 30 after precipitated by virtue of the debtors’ de- meeting pursu-

the conclusion of the held claratory judgment action and the trustee’s 2003(a) ant filing to Rule or the response thereto. These be summa- unless, amendment to the list within such rized as follows: period, granted by further time is Copies court. precluded shall be 1. Whether the trustee is from delivered or mailed to the trustee and to challenging the debtors’ homestead ex- chapter 1. presented Section and references herein refer tо by shall determine the issues the Code, Bankruptcy the objections. 11 U.S.C. 101-1330. §§ appears accepted The trial court to have the 4003(c) provides: 2. Rule Appellee debtors’ valuation. does not contest (c) this any hearing valuation in his briefs. The Burden of Proof. In under differ- rule, objecting party ence this the between the debtors' valuation has the burden of and that of proving appraiser properly large enough are not is not to affect notice, hearing appellants’ position. claimed. After the court on claim he emption “family preventing where neither nor life and homelessness” in in any party interest failed to this is not to be confused protection “with (as way specific any exemp- of a residence from existence of creditors.” thereof) The majority the amount the would hold that tion or within the debtor’s exemption only period by money entitles him to 30-day established the equivalent equity position of his time at the filing, of up thе maximum exemption considering 2. an exemption claim and amount; that protected and there is no precluded whether the trustee is from spe- interest in continued residence within offering by the virtue for sale cific property. only theory Not is at estate, being of there no in the language spirit odds with the and the of commonly shall the costs attributable statute, exemption it is in conflict with of real to sale estate be added the previous holding of this Panel. In Wei- exempt by sum law. (In Stopher Weiman), man v. bankruptcy Whether the federal the Pánel held that exemption statute or under California 544 does endow the not trustee with the § both, law, the precluded trustee is continuing judgment of a lien creditor claiming postpetition appreciation from property. Weiman, the debtor’s the in of value the in which previously trial court had ruled that while put is claimed. it other- To the prop- debtors’ home was from wise, estate, rights are the of inso- the estate, erty of the it was sub- nevertheless concerned, far value is of fixed as ject continuing to a lien under California of the filing the date law in the trustee in favor of the amount of petition. the allowed unsecured claims in the estate. The trustee have thus would been able DISCUSSION date, execute lien at some later statutory A. The homestead is post-bankruptcy, satisfy order to these intended to allow an claim- reversed, concluding claims. Panel The possession ant retain of his home that granted § no equity where exists the ex- above rights holding judgment of one lien as of emption amount. time, particular point the commence- Turning language Code of of Cal. case, rights ment date of the did 704.800,3 Civil Procedure it is clear § continuing include a lien on the debtor’s nature of whatever the inter- debtor’s The concurring opinion be, given est no of excess stated: property plus statutory liens There is an inherent contradiction in al- exemption, exclusively crеditors, lowing discharged virtue beyond his debtor’s all reach invoking to have access to § long creditors as that so condition obtains. homestead itself debtor’s ... should in- To consider nature of the debtor’s debtor, later, desire it. years to leave terest in the is a this context stay provisions The gratuitous exercise. discharge injunction, as an character of The of a valid 524(a) effect homestead ], in order to serve a fresh [§ [as] ap- debtor, is the central start, tion claim issue of this be subverted. would peal. majority start, concludes while having instead a fresh statutory derives his subject homestead have a homestead to doubt legislative policy preserving during from uncertainty the lifetime ing judg- 3. Section 704.800 the Code of Civil Procedure but not limited attachment of provides: lien, ment homestead shall not be sold (a) If no bid received at a sale of a shall and is be released to a court pursuant ato court order for exceeds upon subsequent sale that application order for sale plus the amount the same creditor for a one satisfy necessary amount additional all year. property liens and encumbrances includ- Moreover, parties in property such a result of the the debtors’ shall [state lien]. ‍​‌​‌‌​‌​‌​‌​​‌​​‌‌‌​‌​​​​‌‌‌​‌​‌‌​​​‌‌​​​​​​​​‌‌‍letter, if spirit, would violate the not the be established. the case of In re Tar 522(c) provides proper- rant, (Bankr.D.Alaska, 1982), which that 19 B.R. 360 [§ ] ty exempted under not liable holding the court in that the § debtor was pre-bank- for during or after the case postpetition appreciation entitled of the ruptcy debts. homestead stated: Id. at 53. code, language particularly in the definition of “value” contained Here, the use his ministe- trustee would 522(a)(2), history judicial and the § in same manner as the rial claim of title interpretation, concerning the “date of attempted to use the lien claim of a cleavage” pur- demonstrates that 544. He should creditor under § determining exemptiоns poses of Con- permitted likewise not be to do so. gress made as intended valuation be may not B. The trustee sell filing petition. of the date of Such residence unless its fair market value consistency among a rule assures necessary pay exceeds the amount Sections, provides various for cer- Code statutory exemption the debtors tainty purposes of administration of amount. estate, protects and a debtor’s fresh by fixing property rights start as of the statute, The relevant state Cal.Civ.Proc. filing. date of 704.800, provides that § if he not sell the debtors’ homestead cannot added). (emphasis has Id. at 366 Tarrant price satisfy all liens obtain sufficient authority by: been cited as In re Dvoroz pay exemption. the debtors their nak, (Bankr.E.D.N.Y.1984); 38 B.R. 178 does not What the statute establish Duncan, (Bankr.D.Alaska 43 B.R. 833 when it must be determined whether suffi- 1984); Salamone, (Bankr. In re 46 B.R. 19 permit cient value in the exists to E.D.N.Y.1984); Sajkowski, In re statute, the sale. This state one (Bankr.D.R.I.1985) Grosso, and In re applies tо all forms of execution (Bankr.D.N.Mex.1984). B.R. 266 property, therefore the debtors’ must majority nevertheless relies on harmonized with Code. 541(a)(6) standing proposition § homestead, Because of the nature of the post-peti- from that the estate benefit Code, and the under state law appreciation of the debtors’ abstractions, operative facts are based on 541(a)(6) part provides Section is, opinions as to value. .Real value “[proceeds, estate includes price market based on does not enter into rents, product, offspring, profits or ” Further, equation. price market This or from estate.... opinion consequently, as to value fluctuate argument begs question since it as- periods over of time. It is therefore neces- exempted property sumes that the remains sary to examine whether there is either a in the estate to the trustee’s point in or time when value must be gain appreci- to sell the in order to considered. interpretation ation. Such an can render 4003(b)meaningless Valuing property claimed as of Rule because it disen- gages time date is consistent with the trustee from Rule’s “ 522(a)(2), dealing which states ‘value’ constraints in with the debtor’s ex- § empt property. market value as of the date of The trustee does not have means fair Likewise, filing petition....” in- such unbridled discretion. His 541(a)(1) states that the estate is com terest and that of the debtor are fixed as of legal prised equitable bankruptcy. Stump, of “all interests of the date of v.White commence 266 U.S. 69 L.Ed. 301 as of the S.Ct. (1924); Whitman, ment of the case.” These two Code sec (Bankr.S.D.Cal.1989). Congress equi- tions indicate the If no realizable intent of point rights ty establish a exists the homestead on the date the time at which filed, petition subsequent is is once it expired. 9006(b)(3).4 has appreciation Rule irrelevant. right Thereafter the exemp- to its debtor’s attacked, collaterally cannot be unless estopped challenge C. The trustee is to the debtor’s exemption claim of was in bad

the debtors’ valuation of their home- exemption faith and the would not other- stead because he object failed to to granted wise have been as a matter of law. period such valuation within the estab- There is a substantial line of cases which 4003(b). lished Rule hold that where neither the trustee nor a objects It should creditor be remembered that the the debtor’s trustee claimed ex emption within the under the time exempt Code has no interest in established 4003(b), Rule and that is perform other than intrinsi the ministe- cally exempt, object thereby is recognizing rial act of para- the debtor’s waived, deemed and the property claimed mount interest therein. Bankruptcy Rule exempt exempted is bankrupt from the 4003(b)implicitly recognizes that there cy See, estate. e.g., (In Munoz v. Dembs proclivity be a resulting pas- for inaction Dembs), (6th re Cir.1985); 757 F.2d 777 delay sive or calculated provided and has (D.C.Colo. In re Keyworth, 47 B.R. 966 acknowledgment be 1985); Caruthers, In re 87 B.R. 723 accomplished by If deadline. (Bankr.N.D.Ga.1988); Latimer, In re does not thirty days, take action within (Bankr.E.D.Pa.1988); In re Latti debtor’s exclusive interest in the more, (Bankr.E.D.Mo.1988); 81 B.R. 18 to the full extent of the claim is Grossman, (Bankr.E.D.Pa. 80 B.R. 311 established. say This is not to 1987); Hawn, (Bankr.E. In re 69 B.R. 567 validity contest the D.Tenn.1987); Woerner, In re 66 B.R. 964 claim or ask for and receive additional time (Bankr.E.D.Pa. 1986); Hahn, In re warranted; to do if so or even at ‍​‌​‌‌​‌​‌​‌​​‌​​‌‌‌​‌​​​​‌‌‌​‌​‌‌​​​‌‌​​​​​​​​‌‌‍a later (Bankr.D.Minn.1986); Richards, In re date, assuming it, he discovers evidence of (Bankr.D.Nev.1986); 57 B.R. 662 In re claim that the debtor’s claim to the Thomas, (Bankr.M.D.Ga.1984); 43 B.R. 201 tion was based on fraud. In this case no Gullickson, (Bankr.W.D. In re 39 B.R. 922 objection was made. No extension was Wis.1984); Blum, In re 39 B.R. 897 requested therefore, none was autho- (Bankr.S.D.Fla.1984). rized; nor is there claim of fraud. COLLIER’S is also in accord with the The debtors stated that the value of their n holdings of the above cases: the date of the was objections Once the deadline for to ex- $415,000. The trustee did not to this emptions passed, has objection may no valuation within 30-day period estab- filed the clаim exemptions unless is 4003(b). 522(Z), lished Under later amended. Under Code section must make a list of 522(1), if party no in interest has claimed as under either federal or objected exemptions claimed, 4003(b) state pro- law. Rule claimed as on the debt- vides that the trustee or creditor has exempt. or’s list is after the meeting first creditors’ King, BANKRUPTCY, COLLIER ON (or list) held after the debtor amends his ¶ (15th 1987). at 4003-11 ed. 4003.04[3] file to the debtor’s claimed ex- emptions. The rule provides further case, appears it that the trustee the trustee/creditor may request an exten- did not file to the debtors’ 30-day period, sion of this which the court 30-day claimed within may grant, in its discretion but if such under Rule There is no indication request granted original within the that the debtors amended their list of ex- 30-day period. The court emptions, has no discretion 4003(b) which under Rule enlarge the 30-day objection automatically deadline have extended the deadline Rhodes, In re limiting objection B.R. 626 which dealt with the time Hill, (9th Cir.1987), discharge. 811 F.2d 484 filing objections.

for facts, Under these circumstаnces, tion. Under these there is and the line of cases noted strictly above no need to exception address this to the construing 4003(b), Rule appear it would generally interpretation strict of Rule that the timely 4003(b). trustee’s failure to constituted a object, waiver of his The majority relies on a distinction be- such that the debtors’ estimation of the objection tween to the existence of a value of their homestead cannot now be claimed objection to the val- collaterally attacked. uation of exempt, claimed for purposes objection of the A deadline. example recent of the strict construc Allen, 44 (Bankr.D.N.M.1984). 4003(b) given Rule is found in Bray The Allen court (In objec- held that while an Brayshaw), shaw v. Clark 912 F.2d tion to the (10th Cir.1990). existence of the itself There the trustee must be made 30-day period, within the filed a motion 30 after the first credi objection valuation held, Allen, need not meeting tors’ be. seeking was a 60-day B.R. at 39-40. The court reasoned objections extension of time to file objections two serve pur- two different exemptions. debtor’s The bankruptcy poses, and party that a court should not be ex- set the trustee’s motion for hearing pected to appraisal obtain an expiration after debt- additional 60- or’s period such a day period requested. short of time. The trustee filed his To follow such reasoning objections would weaken if 60-day period, within the 4003(b), not vitiate Rule by injecting into it granted court later among types distinction objections pro trustee’s motion nunc tunc. which the Rule itself does not make or reversed, The district court and that re- imply. party A would need couch an versal was affirmed the Tenth Circuit. objection to the debtor’s claim of The Tenth Circuit held: in terms of a valuation in order to circum- quite face, Rules are clear on their vent the Rule’s deadline. This is believe, we that a bankruptcy court can particularly so integral where value is extend the to ex- claim inas the case before emptions only by acting origi- within the us. period.... nal time There is simply no Second, the Allen court large relied to a room in wording construing Fitzgerald (In extent on v. Davis re Fitz 4003(b) 9006(b) or Rule permit grant- gerald), (4th Cir.1984), 729 F.2d 306 ing an extension objec- time to file inapposite. was Fitzgerald does not ad tions original outside the thirty-day case, dress Rule In that the debt time limit. sought plaintiffs’ ors to avoid the added). at (emphasis Id. liens their homestead under Many rule, cases have limited 522(f) this broad by alleging that the impaired liens § and have held the debtor’s exemption. their homestead trial claim good must be in upheld, faith to be partially court voided the liens and both notwithstanding the absence of timely parties appealed. appeal While the was objection. Dembs, e.g., See pending, 157 F.2d at the debtors sold their home for words, 780. In other property that would “considerably in excess” of the they otherwise not be as a matter of law estimated in complaint. Id. at 308. does simply because no There not.become was no evidence that the property timely one objects to the objection.5 claimed appreciated had between the date of the provided record, On the facts there and the date of the sale. The appear does not issue as to Fitzgerald that, court held “in the absence underlying validity proof claimed that the property changed has Dembs, 5. The Dembs court stated that this is to avoid 757 F.2d at 780. "exemption by instances declaration.” value after the date of .the filing ...” the expected D. The costs of selling the debt- court could price consider the sale ors’ its residence must be taken into ac- determination of count when plaintiffs’ computing whether the whether there exists 522(f). liens realizable equity were avoidable under Id. at homestead on the date petition. of the majority The concludes with regard to Fitzgerald opinion The provides little this issue that the costs of selling the debt- support proposition that the Allen ors’ property need not be considered in case, majority, and the assert. Fitzgerald determining “surplus whether value” in the any way does not in address Rule property exists. The majority’s discussion merely It [post-petition] holds that “a sale appears to take the following line: Cal.Civ. price greatly in excess of an estimate is 704.800, Proc. applicable the state § more reliable evidence of the ‘value’ de- statute, tion does expressly provide 522(a)(2).” fined Id. at 308. The Fitz- selling costs must be added to the sum gerald proposition case fact stands for a of the amount and encum- contrary to that majority. asserted the brances determining when whether sale of Fitzgerald permitted The court the consid- property debtors’ permissible under post-petition eration of price sale Further, the state statute. the Panel need debtors’ homestead because there was no not consider “customary practices” evidence that the had increased (which may trustees provide or petition in value since the date. In other costs). inclusion selling Moreover, if the words, if it was shown that debtors had keep wanted to their home appreciated post-petition, had the subse- they could have elected to file their quent price irrelevant, sale would be be- Chapter (presuming they could only cause it was challenge admissible as a qualified thereunder). have Finally, be- estimation; i.e., to the original as exemption applies cause the to the debtors’ challenge to the value of the equity, physical and not to the the date the debtors filed petition. itself, selling costs cannot be added to ef- fectively raise exempted the debtors’ inter- case, majority this excuses the est: the statutory exemption repre- amount timely trustee’s failure sents the maximum amount the per- State debtors’ valuation of their residence dis- mits a debtor to claim from his homestead tinguishing between valuation exempt. objections. and other sorts of princi- pal majority places great reliance case on which majority relies for any provision absence of in the relevant prop- distinction does not stand for whereby selling California statute costs it nothing osition asserts. There is in the However, would be considered. the ab- should, Rule which indicates that courts or provision sence of such a under state law to, permitted even are make such a distinc- dispositive should not be of the issue of among objections. contrary, On the selling whether costs recognized should be 9006(b)(3) and the relevant case law as a relevant consideration the context expressly provide 4003(b) that Rule time bankruptcy. of a strictly limits are to be construed. Permit- ting a valuation to be made out- previously recognized, This Panel has al- requirements 4003(b) side of the of Rule dicta, beit in selling the cost of contrary statutory duty trustee’s debtor’s homestead is relevant to the deter- expeditiously act in administering prop- mination of equi- the amount of realizable erty 704(1). of the estate. To read an Martin, ty. In In re 20 B.R. 235 exception 4003(b) into Rule such as does property was majority injects uncertainty $75,000, into the worth and had encumbrances to- debtors’ economic life and taling $43,200; administration “appar- there was thus an of the estate which the Rules equity” $31,800. were intend- ent The debtor had an prevent. ed to $30,000, allowable $1,800. seemed to leave an excess $1,000. How 000 by. Under the ma- ever, that, the Panel stated “[c]onsidering jority’s conclusion, “surplus sufficient val- sale, expenses of there presumably ue” in here, would exist—

be no above the homestead.” Mar permit the sale of the debtors’ —to tin, 20 B.R. at 236. The Martin case does home. If undisputed it were also not further address the selling issue of selling expenses would total no less than costs. home, $20,000, value of the 5% then, by selling the time costs and encum- facially, At least majority’s disposi- satisfied, brances were there would be tion of the ignores issue of costs $26,000 remaining to distribute on account practical matters of administering the exemption, considerably less than bankruptcy sale of the debtors’ home. The they to which are entitled un- majority contends that consideration of der the statute. The debtors selling costs effectively increase the would thus have involuntary financed the exemption. In the context of a home, sale of their while unsecured credi- sale, forced the debtor should not be re- tors would have nothing. received quired to suffer being his home sold out from under him when the result will be Assuming proof there post-pe- were as to money amounting he receives to his appreciation, tition cleavage the date of exemption or little more than that. to value was bankruptcy. the date of The trustee would incur selling cоsts in having the entire interest in the property; eight whether percent is ac- property date, as of that and the trustee curate, as argue, the debtors none, having appreciation should be question some although experi- common that of the debtor. This would be consist- ence probable. indicates that it is But the policy ent with the designed Code actual amount of expenses is less give the debtor a fresh start after the important here than the fact that the trust- Galvan, date. See certainly ee will incur some level of ex- 446, which in the pense in the sale. One judicial ‍​‌​‌‌​‌​‌​‌​​‌​​‌‌‌​‌​​​​‌‌‌​‌​‌‌​​​‌‌​​​​​​​​‌‌‍can take course invalidating judicial lien on (if notice of usually various costs not neces- exempt property stated: concept “This of a sarily) attending the sale of real estate fresh start reaping includes the fruits of bankruptcy. major item is a real es- post-petition appreciation of the debtor’s tate commission. It should be noted that rеal estate.” already trustee has retained a broker. The time provi- frames set relevant fees, insurance, There are also escrow title sions Code and Rules do appraisals, and tax or charges. transfer preclude bankruptcy estates from hav- expenses certainly These will diminish the ing opportunity a fair to review false or amount available be distributed. Effec- overreaching exemption claims. The ma- tively, by withholding consideration of jority ruling specific attenuates standards expenses these computation from the relating to time and would undercut equity, realizable many debtor in cases policy preservation fundamental financing would be compul- the cost of the debtors’ homestead and fresh start when sory sale of his home. The court should the bankruptcy petition is filed. compel the debtor to bear these ex- penses, particularly when the exemption

statutes allow the debtor to remain in his home, unless the creditors can have access surplus equity. a distribution of example may

An serve to illustrate the point. Suppose undisputed it were

fair market value of the debtors’ home was

$400,000, a value which exceeded the total

of the home’s $45,- encumbrances and

Case Details

Case Name: Hyman v. Plotkin (In Re Hyman)

Court Name: United States Bankruptcy Appellate Panel for the Ninth Circuit

Date Published: Feb 12, 1991

Citation: 123 B.R. 342

Docket Number: BAP No. CC-89-1651-MeVP, Bankruptcy No. LA 88-24553, Adv. No. 89-00544-GM

Court Abbreviation: 9th Cir. BAP