Opinion
NOT FOR PUBLICATION
Argued and Submitted at Sacramento, California, July 21, 2006
Appeal from the United States Bankruptcy Court for the Eastern District of California. Honorable Robert S. Bardwil, Bankruptcy Judge, Presiding. Bk. No. 05-25124-D-13L.
Before: MONTALI, SMITH and BRANDT, Bankruptcy Judges.
MEMORANDUM
Appellant T & F Construction Co., Inc., (" Creditor") objected to the claimed $150,000 homestead exemption of appellees Harvey Zall and Selma Janet Zall (" Debtors"). Creditor asserted that the exemption amount is limited to the amount available ($100,000) under California law when its judgment lien attached. The bankruptcy court overruled Creditor's objection. We hold that the date Debtors filed their bankruptcy petition was the relevant date for determination of the amount of the homestead exemption under California law. Accordingly, we AFFIRM.
I. FACTS
Debtors own and live in a home in Sacramento, California (the " Residence"). On September 27, 1993, Creditor obtained a judgment against Debtors for approximately $100,000 and recorded an abstract of judgment against the Residence. On this date, the amount available under the homestead exemption provisions of the California Code of Civil Procedure (" CCP") § 704.730(a)(3) was $100,000. On April 29, 2005, Debtors filed their joint chapter 13 petition, valuing the Residence in the amount of $300,000. By this time, Debtors owed approximately $250,000 on Creditor's judgment. In Schedule C of their Schedules and Statement of Financial Affairs (" Schedules"), Debtors claimed a $125,000 homestead exemption in the Residence, pursuant to CCP § 704.730(a)(3). On August 23, 2005, Debtors amended their Schedule C, claiming a homestead exemption of $150,000 and again relying on CCP § 704.740(a)(3).
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
CCP § 704.730(a)(3) requires that the residence at issue be a homestead and that at least one of the debtors be over the age of 65. Creditor concedes that the Residence is a homestead and that at least one of the Debtors is over the age of 65.
On August 30, 2005, Creditor filed a timely objection to Debtors' amended homestead exemption claim. Creditor again contended that Debtors' homestead exemption is limited to the $100,000 available in 1993 when Creditor fixed its lien against Debtors. The bankruptcy court overruled Creditor's objections to both the original and amended exemption claims and sustained the $150,000 claimed homestead exemption. Creditor's notice of appeal was timely.
Creditor's objection to the original exemption claim was overruled as moot. Creditor filed notices of appeal of both the order denying the objection to the original exemption as moot and the order denying the objection to the amended exemption on substantive grounds. Because both objections focused on the same argument (i.e., that the exemption amount should be the statutory amount available on the date Creditor recorded its abstract of judgment), the appeals have been consolidated. Because, as discussed below, we are affirming the order denying the objection to the amended exemption on substantive grounds, we are likewise affirming the denial of the original objection to the exemption as moot.
II. ISSUE
Is the relevant date for the determination of the amount of the California Debtors' homestead exemption the date on which Creditor's judicial lien was fixed or the date on which Debtors filed for bankruptcy?
III. STANDARD OF REVIEW
Questions regarding a debtor's right to claim exemptions are questions of law to be reviewed de novo. Arnold v. Gill (In re Arnold), 252 B.R. 778, 784 (9th Cir. BAP 2000). " The bankruptcy court's application of California exemption law is a question of statutory construction which is reviewed de novo." Cisneros v. Kim (In re Kim), 257 B.R. 680, 684 (9th Cir. BAP 2000).
IV. JURISDICTION
The bankruptcy court's order allowing Debtors' claimed homestead exemption is a final appealable order that we may review. Sticka v. Casserino (In re Casserino), 290 B.R. 735, 738 (9th Cir. BAP 2003); 28 U.S.C. § 158(b).
V. DISCUSSION
In this case, Debtors claimed an " automatic" homestead exemption pursuant to CCP § 704.720. To be eligible for the " automatic" homestead exemption, at least one of the Debtors must have resided continuously in the dwelling from the time Creditor's lien attached until the forced judicial sale. CCP § 704.710(c); Hastings v. Holmes (In re Hastings), 185 B.R. 811 (9th Cir. BAP 1995). Creditor does not dispute Debtors' entitlement to claim that exemption; instead, it disputes the amount of the exemption claimed by Debtors under the statute.
A. The Law and Practicality Dictate that the Measuring Date for a Homestead Exemption is the Petition Date.
In California, " if a homestead is sold . . . the proceeds . . . are exempt in the amount of the homestead exemption provided in Section 704.730." CCP § 704.720. Debtors contend in their amended Schedule C that they are eligible for an exemption of $150,000 exemption, the amount available under CCP § 704.730(a)(3) at the time of the commencement of their Chapter 13 petition in April of 2005. Creditor asserts that Debtors are only entitled to the $100,000 exemption amount allowed under CCP § 704.730(a)(3) at the time its judicial lien was fixed in 1993. Because we are bound by prior BAP decisions on point ( Ball v. Payco-General Am. Credits, Inc. (In re Ball), 185 B.R. 595, 597 (9th Cir. BAP 1995)), resolution of this issue on appeal is straight-forward. The decision in Nadel v. Mayer (In re Mayer), 167 B.R. 186 (9th Cir. BAP 1994) is on point and mandates that we affirm the bankruptcy court's decision to use Debtors' petition date to determine the amount of their exemption.
In In re Mayer, the debtor claimed a homestead exemption under CCP § 704.730(a)(3) in the amount available for the year he filed for bankruptcy. Id. at 187. The creditors objected, asserting that the debtor was limited to the lesser exemption amount that was applicable the year their judgment lien was fixed. Id. The bankruptcy court so held, but this panel held that " exemptions are determined as of the date the bankruptcy petition was filed." Id. at 188. Further, the panel specifically held that the creditor's judgment lien is irrelevant in determining the debtor's exemption, because the debtor's bankruptcy petition constituted a hypothetical levy by the trustee on the property, id. at 189, and " it is this hypothetical levy that the court must focus on." Id. The debtor was entitled to the homestead exemption amount available under California law when he filed his bankruptcy petition. Id.
The holding in In re Mayer is not only controlling, but also sound. When a debtor files a bankruptcy petition, all legal and equitable property interests become property owned by the bankruptcy estate. 11 U.S.C. § 541. A debtor is entitled, however, to exempt certain assets from the estate. 11 U.S.C. § 522. In general, " exemption rights are determined as of the petition date." Gaughan v. Smith (In re Smith), 342 B.R. 801, 806 (9th Cir. BAP 2006). See also Chiu v. Chiu (In re Chiu), 266 B.R. 743, 751 (9th Cir. BAP 2001); In re Kim, 257 B.R. at 685; In re Mayer, 167 B.R. at 188; Owen v. Owen, 500 U.S. 305, 314, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). Indeed, without support of legal authority, an " attempt to carve out an exception to the well-established law that exemption rights are determined on the petition date must be rejected." In re Kim, 257 at 685 (quoting Wolf v. Salven (In re Wolf), 248 B.R. 365, 368 (9th Cir. BAP 2000)).
Creditor contends that California exemption law in effect on the petition date provides that parties should refer to prior versions of the statutes to determine whether the exemption amount of a judgment lien predates the current enactment. This procedure is not only unworkable in the bankruptcy context, but it is also inconsistent with the Bankruptcy Code. In re Kim, 257 B.R. at 687.
First, as a practical matter, if the exemption amount is fixed as of the dates of multiple judgment liens, a debtor may have varying amounts of exemptions in the same property. How would a bankruptcy trustee, who is generally the party who objects to a debtor's exemptions, be able to determine the appropriate amount of the exemption if there are multiple judgment liens against the property?
Secondly, and more importantly, limiting the exemption to the amounts available on the dates that judgment liens attach is inconsistent with section 522(f). Under section 522(f), Debtor could simply avoid Creditor's lien as impairing his exemption and the exemption amount would be that amount available on the petition date.
The 1994 amendments to section 522 clarified the limitations on state law exemption statutes. Congress amended section 522(f) by developing a mathematical formula from which courts determine whether or not a judicial lien impairs a debtor's exemption rights. Even though this appeal did not arise from a section 522(f) motion to avoid the judgment lien, the bankruptcy court analyzed subsection (f) to support its decision to sustain the objection. We need not adopt this analysis, given the binding nature of In re Mayer. Nonetheless, the bankruptcy court's analysis is persuasive.
According to the statute, a " debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled." 11 U.S.C. § 522(f)(3). Congress instructs courts to consider " the amount of the exemption that the debtor could claim if there were no liens on the property" when calculating the impairment. 11 U.S.C. § 522(f)(2)(A)(iii). Consequently, to calculate the extent to which a lien impairs an exemption, the court must add the lien, all other liens on the property, and the exemption amount if there were no liens; then the court must subtract from that sum the value of the debtor's interest in the property absent any liens. Katz v. Pike (In re Pike), 243 B.R. 66, 71 (9th Cir. BAP 1999); 11 U.S.C. § 522(f)(2)(A). Although this formula clearly conflicts with the provisions of CCP § 703.050 and state law definitions of property rights, " those rights are subject to federal bankruptcy law concerning conflicts between exemptions and other interests in property." Moldo v. Charnock (In re Charnock), 318 B.R. 720, 727 (9th Cir. BAP 2004).
In order to determine the amount of an exemption that Debtors could claim if there were no liens on the property, the court must look not to the time the lien was fixed but rather to the time the trustee's hypothetical levy became effective, which is the date Debtors filed their bankruptcy petition. " It is this hypothetical levy the court must focus on in analyzing [Debtors'] entitlement to a homestead exemption." In re Mayer, 167 B.R. at 189. The focus on the hypothetical levy forces the court to " disregard some element of reality" to ascertain whether the fixed lien is depriving the Debtors of property rights that would be available had the lien not existed. In re Hastings, 185 B.R. 811, 814 (9th Cir. BAP 1995) (quoting Owen, 500 U.S. at 314). See also In re Pike, 243 B.R. at 70 (the homestead exemption trumps the judgment lien, and Creditor's lien status is irrelevant to the lien avoidance proceeding).
B. The Cases Cited by Creditor are Inapplicable.
Creditor relies primarily on two cases to make its argument. In In re Morgan, 157 B.R. 467 (Bankr. C.D. Cal. 1993), the bankruptcy court relied on state court decisions and language in CCP § 704.965 to hold that the debtor was only eligible for the lesser, earlier declared homestead exemption amount. Id. at 469, 470. The second case, Berhanu v. Metzger, 12 Cal.App.4th 445, 15 Cal.Rptr.2d 191 (Cal.Ct.App. 1992), does not address the application of the section 522 exemption laws. In Berhanu, the court limited the debtor to the lower exemption amount that was in effect at the date the judgment lien was fixed, relying also on CCP § 704.965. Id. at 448.
Unlike the present case, neither In re Morgan nor Berhanu pertained to the automatic homestead exemption statute. Further, both cases were decided prior to the 1994 revisions of the Bankruptcy Code that altered section 522. Most importantly, since these cases were decided, this panel has issued In re Mayer and held that the date for the determination of the homestead exemption amount is the date on which debtors file a bankruptcy petition.
Creditor asserts that because California opted out of the federal bankruptcy scheme as permitted under section 522(b)(2)(A), California exemption rules alone should apply. Indeed, CCP § 703.050 states that the exemption amount is determined " by application of the exemption statutes in effect (1) at the time the judgment creditor's lien on the property was created." The policy, however, of allowing states to opt out of the federal exemption scheme is not absolute. Rather, courts must apply state exemption statutes " along with whatever other competing or limiting policies the statute contains." Owen, 500 U.S. at 315. Essentially, the state law exemption statutes must not conflict with the general policies underlying the Bankruptcy Code, or section 522 specifically. In re Charnock, 318 B.R. at 727. " To the extent that the California exemption law attempts to establish a procedure that overrides the well-settled bankruptcy law regarding the date for determining an exemption, it is preempted." In re Kim, 257 B.R. at 687.
VI. CONCLUSION
Because In re Mayer controls us and is correct, we AFFIRM.