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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove


Case Type:
Case Status:
BAP No. CC-21-1101-LSF (9th Circuit, Feb 11,2022) Not Published
A debtor who, on the petition date, lives in property for which the debtor has filed a homestead declaration and has stated an intent to continue living, is presumed to be able to declare a homestead exemption for such property. Further, a debtor's right to an exemption is determined as of the petition date, so that a debtor may have a higher exemption if state law increases the maximum exemption after the debtor recorded the homestead declaration.
Procedural context:
A creditor's judgment liens were avoided under 11 U.S.C. § 522(f) because they impaired the debtor's homestead exemption. The creditor appealed.
Rosa Fridman, the debtor, was engaged in contentious state-court litigation with appellant Karl Avetoom for more than a decade. The litigation resulted in Avetoom having several judgments against Fridman. In 2009, Moisey and Rosa Fridman were awarded a judgment against a homeowners association for $128,821.89 (the “HOA Judgment”). The Fridmans assigned the HOA Judgment to their counsel in that litigation, Robert Risbrough of Darling & Risbrough, LLP (“D&R”). In 2011, Avetoom obtained a judgment for $650,000 against the Fridmans for the intentional infliction of emotional distress (the “IIED Judgment”). Fridman and her husband, Moisey, filed a joint chapter 13 petition in February 2012. The case was converted to a chapter 7 proceeding, and the chapter 7 trustee sold the Fridmans' residence. The bankruptcy court sustained the trustee's § 522(q)(1)(B)(4) objection to the Fridmans' claimed homestead exemption. After a surcharge for the Fridmans' refusal to turn over the residence, the Fridmans were left with a homestead exemption of $134,955. The trustee then sued the Fridmans under § 727. This adversary proceeding was resolved by entry of a stipulated judgment denying the Fridmans a discharge (the "727 Judgment"). While the chapter 7 case was still pending, the Fridmans purchased a condominium (the "Property"). The Property was titled to Moisey and Rosa Fridman, owning an undivided 68.3% interest, and to Alex Fridman (their son), owning an undivided 31.7% interest. Each was a tenant-in-common. The Fridmans recorded a homestead declaration for their interest in the Property in May 2013, and transferred their interest in the Property to a family trust (the "Trust"). Mr. Fridman passed away in August 2015. Avetoom filed a fraudulent transfer complaint in state court against Fridman, D&R, and others, seeking recovery of the HOA Judgment. This litigation settled in 2019, and the superior court entered a judgment (the "Fraudulent Transfer Judgment") that was recorded in November 2020. Fridman then filed a chapter 7 petition on February 26, 2021. She scheduled her interest in the Property at $230,640.22, and claimed a $600,000 homestead exemption under California Code of Civil Procedure § 704.730(a). After filing her bankruptcy petition, Fridman moved under 11 U.S.C. § 522(f) to have Avetoom's judgment liens avoided because they impaired her homestead exemption. Avetoom objected and moved to have the bankruptcy case dismissed under 11 U.S.C. § 707(a) and (b). Avetoom argued, in part, that dismissal was proper because the case was only a two-party dispute that could be litigated in state court and that Fridman filed her petition to avoid contempt proceedings in state court.
LAFFERTY, SPRAKER, and FARIS, Bankruptcy Judges

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