In Re Peterson
Phillip Armstrong (trustee) appeals from a final judgment entered in the District Court1 for the District of North Dakota finding that the bankruptcy homestead exemption of debtor Melvin Peterson survived his death and could be distributed to his heirs. We affirm.
I.
Peterson filed a voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code (Code) on December 9, 1985. Peterson claimed a homestead exemption when he filed the petition. The trustee concedes that at the time of filing, Peterson was entitled to and properly claimed a homestead exemption. At the time he filed his petition, Peterson had five children, one of whom was a dependent.2 Peterson died on August 20, 1986, while his cаse was still pending.
In April 1988, the trustee moved for a declaratory judgment that the homestead exemption lapsed when Peterson died before his bankruptcy case closed without leaving a surviving spouse or a dependent child. On October 24, 1988, the bankruptcy court ruled in favor of trustee, holding that under North Dakota law the homestead еxemption continues after the claimant dies only if there is a surviving spouse or a dependent child. The court ruled that Peterson‘s homestead exemption was relinquished when he died during the pendency of his bankruptcy without leaving a spouse or a dependent child, and the property reverted to the bankruptcy estate.
Peterson‘s estate appealed the bankruptcy court‘s decision to the district court. On January 17, 1989, the district court reversed the bankruptcy judge, ruling that Bankruptcy Rule 1016, the Bankruptcy Act of 1898 and its legislative history established that the exemptions of a debtor are preserved even if the debtor dies prior to the closing of the case. See In re Peterson, No. A4-88-272, slip op. at 4 (D.N.D. January 17, 1989). Trustee‘s motion for reconsideration was denied. This appeal followed.
II.
A brief review of how the homestead exemption fits into the overall bankruptcy scheme, as well as the interplay between federal and state law, will enable this court to more effectively address the issue raised by the trustee. At the time the debtor files a Chapter 7 petition, a bankruptcy estate is created which is comprised of all of the debtor‘s legal and equitable interests in property,
A homestead exemption is one of the exemptions available under North Dakota law. The North Dakota Constitution mandates that laws be established which exempt a homestead from forced sale.
III.
With this overview in mind, we turn to the issue raised by trustee. For reversal, trustee argues that the homestead exemption laрsed and reverted to the bankruptcy estate when Peterson died without leaving a spouse or dependent children while his bankruptcy case was still open. Because entitlement to a bankruptcy exemption is a question of law, we review the judgment of the district court de novo. In re Hutton, 893 F.2d 1010, 1011-1012 (8th Cir.1990); Stevens v. Pike County Bank, 829 F.2d 693, 695 (8th Cir.1987).
We do not agree with Trustee‘s contention that Peterson‘s death cause his exemption to lapse. “It is hornbook bankruptcy law that a debtor‘s exemptions are determined as of the time of the filing of his petition.” In re Friedman, 38 B.R. 275, 276 (Bankr.E.D.Pa.1984) (Friedman ). We join these courts finding that bankruptcy exemptions are fixed on the date of filing. See White v. Stump, 266 U.S. 310, 313, 45 S.Ct. 103, 104, 69 L.Ed. 301 (1924); Mansell v. Carroll, 379 F.2d 682, 684 (10th Cir.1967).
By holding that exemptions are fixed on the date of filing, we focus only on the law and facts as they exist on the date of filing the petition. There is no doubt that the law as it exists on the date of filing determines a debtor‘s claimed exemption.
Our decision to cоnsider only the facts and circumstances as they exist on the date of filing is supported by precedent, Bankruptcy Rule 1016, logic, and policy considerations. Although no court in this circuit has addressed the issue of which facts should be examined to determine whether a debtor qualifies for a claimed exemption, several other courts have reached the same conclusion we reach today. In Friedman, 38 B.R. at 276-77, the bankruptcy court rejected an argument similar to the one made by the trustee in this case. The court held that the $7500 federal homestead exemption claimed by the husband on the date of filing survived his death and could be claimed by his wife in addition to her own homestead exemption. The court reasoned that the husband‘s entitlement to the homestead exemption vested at the time the petition was filed and his subsequent death did not destroy the claimed exemption. Id. at 276.
Similarly, in In re Rivera, 5 B.R. 313, 315-16 (Bankr.M.D.Fla.1980), the bankruptcy court denied the debtor a homestead exemption because he was unmarried6 and did not qualify for head of family status under Florida law at the time he filed his petition, even though his child was born three days after the bankruptcy petition was filed. The court held that “the right to claim exemptions by a Debtor is governed by the facts and governing circumstances which existed on the date the petition was filed and not by any changes which may have occurred thereafter.” Id. at 315 (emphasis added). Because the debtor was unmarried and childless at the time of filing, the court determined that the debtor was not entitled to a homestead exemption.
Several courts have extended the Rivera rule to hold that trustees or creditors were not entitled to the proceeds of exempt property which the debtor sold after filing, so long as the debtor was entitled to the exemption on the date of filing. See, e.g., In re Patterson, 64 B.R. 120, 123 (W.D.Wis.1986) (“[o]nce a debtor‘s available exemptions are determined, a debtor generally will not lose the available exemptions because of the subsequent sale of the exempt assets“); In re Werner, 79 B.R. 819, 820 (Bankr.W.D.Wis.1986) (sale of exempt farm property two days after filing of petition does not alter exempt status because “debtors are entitled to the exemptions they had available on the date of filing their bankruptcy petition“); In re Brzezinski, 65 B.R. 336, 339 (Bankr.W.D.Wis.1985) (sale of exempt farm property at auction 17 days after filing does not destroy exemption because “[e]xemption rights are determined based on the circumstances prеsent at the time of filing ... [c]hanges occurring after filing are not relevant“).
Secondly, Bankruptcy Rule 1016 (1988) provides in relevant part that “[d]eath or insanity of the debtor shall not abate a liquidation case under Chapter 7 of the Code. In such event, the estate shall be administered and the case concluded in the same manner, so far аs possible, as though the death or insanity had not occurred.” Chief Judge Conmy noted that this rule does not address the specific issue raised in this case, but found the rule helpful. See In re Peterson, No. A4-88-272, slip op. at 2. We agree. Rule 1016 states that where possible, death of the debtor should not influence the administration or resolution of a bankruptcy proceеding. By determining exemptions based on the facts as they exist on the date of filing, Rule 1016‘s dictate that a debtor‘s death or insanity not influence the bankruptcy proceedings is effectuated. See Friedman, 38 B.R. at 277.
Thirdly, logic supports our conclusion that only the facts existing on the date of filing a petition should be examined to determine a debtor‘s right to exemрtions. In
Finally, policy considerations support evaluating a debtor‘s right to exemptions based on the facts in existence at the time of filing. One of the main goals of the Bankruptcy Code is to provide honest debtors with a fresh start. In re Lindberg, 735 F.2d 1087, 1090 (8th Cir.1986), cert. denied, 469 U.S. 1073, 105 S.Ct. 566, 83 L.Ed.2d 507 (1984) (Lindberg ). As stated by this court in Lindberg, “[d]ebtors are permitted to exempt a certain amount of their personal assets to facilitate a ‘fresh start.’ They may make full use of exemptions, and can even convert non-exempt property to exempt property on the eve of bankruptcy.” Id. Determining the debtor‘s right to exemptions on the date оf filing facilitates the debtor‘s fresh start. If events subsequent to the date of filing are allowed to alter a debtor‘s exemptions, uncertainty and subsequent litigation could impede a debtor‘s fresh start. Moreover, allowing postpetition facts to alter a debtor‘s homestead exemption might cause confusion in real estate titles and make it more difficult to finally resolve bankruptcy cases. Consideration of post-petition facts would thus hinder the quick, expeditious resolution of bankruptcy disputes.
For these reasons, we conclude that Peterson‘s right to a homestead exemption is determined by applying North Dakota law to the facts and circumstances of Peterson‘s case as of the date he filed his petition.
Peterson filed his bankruptcy petition on December 9, 1985. His entitlement to a homestead exemption is thus examined under the facts as they existed on that date. There is no doubt that Peterson was entitled to a homestead exemption at the time he filed his petition.7 At the time of filing, Peterson‘s youngest daughter was a dependent and lived with him on the homestead property. Peterson was thus a head of a family within the meaning of
Peterson‘s homestead exemption became fixed and vested on the date of filing. Peterson‘s death, which occurred eight months after the date of filing, is irrelevant for determining his right to a homestead exemption.8 Accordingly, we hold that Peterson‘s death eight months after filing his petitiоn did not constitute an abandonment of the homestead or cause it to lapse and revert back to the bankruptcy estate.
Accordingly, the judgment of the district court is affirmed.