- Case Type:
- Case Status:
- 19-2074 (1st Circuit, Jul 30,2020) Published
- Upon conversion to chapter 7, the homestead exemption claimed on the original chapter 13 case, maintains the status it held on the day of the filing of the bankruptcy petition.
- Procedural context:
- Jeffrey J. Rockwell filed for Chapter 13 bankruptcy and exempted his home from the bankruptcy estate under Maine's homestead law. Later, while the bankruptcy was still proceeding, Rockwell sold that home and, despite Maine's law, did not reinvest the proceeds of the sale in another homestead within six months. When he converted his bankruptcy to a Chapter 7 proceeding, Chapter 7 Trustee Nathaniel Richard Hull objected to Rockwell's homestead exemption. The bankruptcy court denied Hull's objection and the district court affirmed. Hull then appealed to the First Circuit.
- Mr. Rockwell owned property and was living there on August 19, 2015, when he filed for Chapter 13 bankruptcy. He claimed a homestead exemption for $47,500 of equity for the property, and as part of his Chapter 13 reorganization plan, he proposed to pay the owner of the mortgage directly from his other assets and retain ownership and possession of the property. The bankruptcy court confirmed Rockwell's Chapter 13 plan in November 2015. More than a year later, he sought the bankruptcy court's permission to sell the property for $160,000. Rockwell proposed that he would retain the $47,500 allowed by Maine's homestead exemption and contribute the remaining, non-exempt proceeds to his Chapter 13 reorganization plan. the bankruptcy court granted Mr. Rockwells motion. Rockwell was to pay any remaining, non-exempt funds from the sale to the Chapter 13 trustee to pay down Rockwell's debt. When Rockwell finalized the sale of the property, He kept $47,500 (his homestead exemption as allowed by Maine law) and paid the remaining $4,182.87 to the Chapter 13 trustee. Mr. Rockwell stayed on the property for a while, but even though he did not purchase a new home within the six months following the sale, he contributed to the reparations and upkeep of a new property he intended to and move in. The bankruptcy court reviewed the proof of those expenses and reparations.
On August 7, 2017, Rockwell converted his Chapter 13 case to a Chapter 7 case. He moved into the new property in September 2017 and continued to spend the money from his homestead exemption on repairs and improvements to that property. A few months later, the Chapter 7 trustee, Hull, objected to Rockwell's use of the homestead exemption. Mr. Hull argued that Rockwell was no longer using the exemption to protect his interest in a homestead because he had not reinvested the proceeds of the sale as required by Maine law. Therefore, the previously protected money specifically, the $28,693.77 that Rockwell had not yet spent when he converted his case to a Chapter 7 case, should become part of the bankruptcy estate and be used to pay off Rockwell's creditors.
Rockwell argued that the Bankruptcy Code, and First Circuit precedent, requires that the bankruptcy court applied the "complete snapshot" rule. Meaning the court evaluates Rockwell's affairs on the day he files for bankruptcy without considering any developments after that date to determine if assets are properly exempted from the bankruptcy estate.
In a bench trial, the judge denied Hull's objection, explaining that "the complete snapshot view [of Rockwell's finances on the day he filed for bankruptcy] more faithfully adhere[d] to the Code, First Circuit authority, and the practicalities of administering a chapter 7 case." The trustee appealed to the district court, which affirmed and then to the Court of Appeals.
- Thompson, Lipez, and Kayatta
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