Gray v. Warfield (In re Gray)

Summarized by Lars Fuller , BakerHostetler
11 years 2 months ago

Citation:

Gray v. Warfield (In re Gray), BAP No. AZ-13-1502-JuKiD (BAP 9th Cir. 2014)

Tag(s):

Ruling:

The 9th Cir. BAP, applying Law v. Siegel, 134 S. Ct. 1188 (2014), ruled that the bankruptcy court has no discretion to deny a debtor's claimed exemptions based on a finding that debtors amended their exemptions in bad faith, unless state law authorizes such discretionary disallowance. The BAP reversed the bankruptcy court (D. Az.), and remanded for the bankruptcy court to determine if Arizona exemption law allows equitable considerations of whether to allow a claimed exemption. The BAP concluded that the U.S. Supreme Court's ruling in Law v. Siegel, including dicta therein, abrogated existing 9th Circuit precedent that authorized a bankruptcy court's discretion to disallow a claim of exemption on equitable principles. The BAP noted that there was no federal statutory authorization to disallow a debtor's claim of exemption, but that 9th Circuit precedent had allowed a "case made" right to discretionary disallowance, including disallowance for equitable principles, such as the debtor's bad faith. In Law v. Siegel, the U.S. Supreme Court rejected a bankruptcy court's surcharge of a debtor's homestead as a sanction for bad faith conduct. Reviewing both the holding and the dicta, the BAP panel concluded that under Law v. Siegel the U.S. Supreme Court made clear that the bankruptcy court lacked any authority under federal law to disallow a validly claimed exemption. The BAP concluded that Law v. Siegel did not address whether discretionary disallowance might be provided for under the "opt out" state's statutes or case law. Consequently, the BAP reversed and remanded to allow the bankruptcy court to separately evaluate whether Arizona exemption law authorized discretionary disallowance of a claimed exemption.

Procedural context:

After the bankruptcy court granted the Chapter 7 trustee's objection to the debtors' amended claim of exemption in a rent deposit, finding the debtors had amended their exemptions in bad faith, the debtors appealed to the 9th Circuit BAP.

Facts:

Debtors filed Chapter 7 bankruptcy after pre-paying several months rent. After the Chapter 7 trustee discovered the prepayments at debtors' 341 meeting of creditors, the trustee sought to recover the prepayment that applied to one month of postpetition rent. Debtors amended their exemptions to claim the prepayment as exempt. Arizona exemption law made the prepayment exemption based on the dollar amount.

Judge(s):

Jury, Kirscher, Dunn

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