Bencomo v. Avery (In re Bencomo)

In re Bencomo, No. CC 15-1442-DKuF (9th Cir. B.A.P. Aug. 8, 2016). Not for publication.
The bankruptcy court failed to consider whether the chapter 7 debtor’s use of homestead proceeds to make residential rent payments qualified as reinvestment under Cal. Code Civ. P. § 704.720(b).
Procedural context:
The chapter 7 debtor, Bencomo, claimed a $100,000 exemption in his homestead under CCP §§ 704.710, .720, and .730. The trustee sold the residence and paid Bencomo $100,000. More than six months later, the trustee moved to compel Bencomo to turn over the funds because he had not invested the funds in a new homestead within six months. The bankruptcy court granted the motion. On appeal, the BAP affirmed in part but vacated and remanded.
Under section 704.720(b), exempt proceeds of a homestead execution sale are exempt for six months after the debtor receives the proceeds. Bencomo spent part or all of the exempt funds for rent under a one-year lease and for other expenses. Bencomo argued before the bankruptcy court that his acquisition of a leasehold estate during the six-month reinvestment period qualified as a reinvestment in a homestead, citing CCP § 704.740 and .820. The bankruptcy court did not explain its reasoning why Bencomo's use of part of the proceeds to pay rent did not qualify as reinvestment in a homestead. The BAP vacated the turnover order and remanded to the bankruptcy court to consider that issue and make findings and conclusions of law that address it. Despite the remand, the BAP affirmed the bankruptcy court’s other rulings against Bencomo. First, a proceeding to require a chapter 7 debtor to turn over property to the trustee is appropriately prosecuted by motion; an adversary proceeding is not required. Second, under 11 U.S.C. § 544(a)(1) and (2), the trustee has the rights of a hypothetical judgment-lien creditor. Thus, any actual sale by the trustee is presumed to have satisfied all procedural requirements for an execution sale, and the six-month reinvestment requirement applies to exempt proceeds of a trustee’s sale of a homestead. Third, because the exemption remained in effect during the six-month period, the trustee was not required to notify Bencomo that the trustee could seek turnover of the exempt funds if they were not reinvested within that period.
Randall L. Dunn, Frank L. Kurtz, and Robert J. Faris, Bankruptcy Appellate Panel Judges.

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