Now Updating
In re- 450 S. WESTERN AVE., LLC,

Summarizing by Bradley Pearce

Elliott v. Weil (In re Elliott)

BAP Case Nos. CC-14-1050-KiTaD and CC-14-1059-KiTaD
The BAP held the Supreme Court's recent decision in Law v. Siegel, 134 S.Ct. 1188 (2014) prohibits a bankruptcy court from denying a debtor's claimed exemption (or amendment to an exemption) on the basis of bad faith. However, an exemption can still be denied if there is a "valid statutory basis" to do so. This basis can exist under either state or federal law. Here, the Panel remanded for a determination of whether the Debtor satisfied the continuous residency requirement of California's "automatic" homestead exemption. See Cal. Civ. Proc. Code 704.730(a)(3). The panel also remanded for consideration of whether Section 522(g) of the Bankruptcy Code limited the Debtor's ability to claim the exemption in light of a turnover action filed by the Trustee. Quoting Hitt v. Glass (In re Glass), 164 B.R. 759, 764-65 (9th Cir. BAP 1994), aff'd 60 F.3d 565 (9th Cir. 1995), the BAP noted Section 522(g)(1) prohibits an exemption "[w]here a debtor voluntarily transfers property in a manner that triggers the trustee's avoidance powers or the debtor knowingly conceals a prepetition transfer or an interest in property, and such property is returned to the estate as a result of the trustee's actions directed toward either the debtor or the transferree." Notably, the Elliott decision did not address Bankruptcy Rule 4003(b)(2), which allows the trustee to "file an objection to a claim of exemption at any time prior to one year after the closing of the case if the debtor fraudulently asserted the claim of exemption."
Procedural context:
Appeal from a bankruptcy court order sustaining a Chapter 7 Trustee's objection to a California homestead exemption on the basis of bad faith due to Debtor's concealment of assets later claimed exempt.
Debtor filed Chapter 7 bankruptcy in December 2011, listing a home address on Hiawatha Street. The original schedules did not claim a homestead exemption and omitted certain creditors holding a lien related to a fraud based judgment obtained in 2006. At the 341 meeting, Debtor confirmed he lived on Hiawatha Street and claimed he did not own any real property. The Debtor was granted a discharge and the case was closed. It was later discovered that, shortly after entry of the state court fraud judgment, Debtor embarked on a series of "sophisticated transfers of title" whereby a piece of property originally owned by the debtor was transferred through multiple affiliate entities--with the Debtor ultimately regaining title in his personal name just weeks after his bankruptcy case was closed. The Debtor's subsequent demand to the judgment creditors to release their lien triggered an investigation that resulted in the reopening of the bankruptcy case. After the case was reopened, the Debtor amended his schedules to claim a homestead exemption in the subject property. The Trustee objected on the basis of bad faith, which the bankruptcy court sustained.
Kirscher, Taylor, and Dunn. Opinion by Judge Kirscher.

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