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Salven c. Galli (In re Pass)

Salven v. Galli (In re Pass), Case No. 15-1367-DTaJu (BAP 9th Cir. Aug. 1, 2016)
The 9th Cir. BAP affirmed the bankruptcy court's (E.D. Cal) order and summary judgment that a non-debtor ex-spouse (Galli) was entitled to claim a homestead exemption in community property of the estate which the chapter 7 trustee sought to sell under §363(f). Although the bankruptcy court decided the issue on a prepetition declaration of homestead made under CCP §704.950, the BAP affirmed under the "automatic" homestead exemption of CCP §704.710. The BAP held that Galli's status as a non-debtor did not prevent him from claiming the automatic exemption in property of the bankruptcy estate. The panel next held that Galli was entitled to the exemption despite the fact that the debtor amended her exemption to claim another property because after the couple were divorced, the non-debtor was free to claim a separate homestead exemption and was not "yoked, for state-law exemption purposes, to [his] ex-spouse who remained in bankruptcy."
Procedural context:
The chapter 7 trustee sought to avoid transfers made pursuant to a dissolution decree as violative of the stay and as avoidable post-petition transfers, and to sell the property at issue pursuant to 363(f). The bankruptcy court entered summary judgment that the property at issue remained community property and property of the estate, but that it could not be sold without compensation to Galli for his homestead exemption. The trustee appealed separately from the order and judgment.
Pass and Galli were married and originally filed a joint chapter 13. The couple claimed a homestead exemption in the Manila Avenue House. Without seeking stay relief, the couple initiated a divorce proceeding. After a dissolution order was entered in state court, the couple severed the joint case and made transfers of estate property pursuant to the dissolution decree, again without stay relief. Pass converted her case to chapter 7 and Galli's case was later dismissed. Pass amended her schedules to claim an exemption in the Coalinga House. The trustee objected to the amended exemption but after an evidentiary hearing the court overruled the objection on the basis of Pass's testimony that she left the Manila House and moved into the Coalinga House with no intention ever to return, hours before the joint petition was filed. The trustee then sought to avoid the property transfers and sell the Manila House in which Galli continued to reside. The trustee argued that exemptions are fixed on the petition date, and a married couple cannot claim more than one homestead exemption under California law. The bankruptcy court entered summary judgment that the Manila property could not be sold without compensation to Galli because of a prepetition declaration of homestead filed by the couple.
Dunn, Taylor, Jury

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