Case Type:
Case Status:
BAP No. EC-21-1141-SFL (9th Circuit, Mar 25,2022) Published
Debtor may amend his schedules to claim an exemption in sale proceeds of real property after the interest was sold by the bankruptcy trustee, under circumstances where the Debtor did not conceal facts. The bankruptcy court’s order sustaining the trustee’s objection to the amended claim of exemption based on the application of equitable estoppel was reversed.
Procedural context:
Bankruptcy court held that the debtor was equitably estopped from amending his claims of exemption. On appeal, the BAP reversed, thus validating the amended claim of exemption.
The Debtor (Guevarra) held title to real property as joint tenants with his nephew (Darcy). Debtor agreed to be on title to enable his nephew to obtain the loan to buy the property, but the Debtor asserted he held no beneficial interest in the property. He did not contribute any money, and the nephew resided at the property and made all loan payments. The Debtor disclosed these facts at the beginning of the case. The Trustee obtained a court order (over the Debtor's objection) authorizing the sale of the Debtor's 50% interest in the property. The Debtor amended his claim of exemptions to include the sale proceeds, and argued that the Debtor believed that its interest in the property was held in a resulting trust for the nephew, but once the court in effect rejected that position and authorized a sale of the Debtor's interest as property of the estate, the Debtor then amended his claim of exemption to cover the property. The bankruptcy court ruled that the exemption was not claimed in good faith (under state law) and that an exemption was being improperly claimed for the benefit of another person. The Debtor appealed and the BAP ruled that these grounds were not a proper basis for denying the exemption, but remanded the case to consider an argument the Trustee had made that the Debtor was equitably estopped from claiming the exemption. Following remand, the bankruptcy court ruled that the Debtor was equitably estopped from claiming the exemption because he had concealed his actual ownership and his intent to (later) claim an exemption. The BAP reversed, finding that the facts did not justify estoppel. The BAP explained: There is an obvious tension between the debtor’s right to amend his exemptions and application of equitable estoppel. As we noted in our prior decision, we have interpreted Law v. Siegel, 571 U.S. 415 (2014), “as overruling the bankruptcy court’s authority to deny an exemption on grounds of bad faith.” In re Guevarra, 2021 WL 1179619, at *4. Equitable estoppel is not a substitute for bad faith. Courts must be careful not to penalize debtors for exercising the statutory right to amend their exemptions or to read too much into a debtor’s failure to exempt an asset. Without more, such an omission does not constitute a misrepresentation or concealment for purposes of equitable estoppel. Similarly, standing alone, the failure to exempt an asset does not impermissibly induce a trustee to administer an asset as he or she knows that debtors may amend their exemptions as a matter of right. Admittedly, this can place chapter 7 trustees in a tenuous position when faced with a valuable asset that the debtor has not exempted but could. Even so, we are not free to ignore the necessary implications of Law v. Siegel simply because they present a practical problem for chapter 7 trustees in administering estate assets. As explained above, the record does not support the bankruptcy court’s findings that Guevarra knowingly concealed his interest in the Property while the trustee was ignorant of that interest, or of Guevarra’s right to amend his exemptions.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!

About us in numbers

3509 in the system

3390 Summarized

5 Being Processed