In Re: Zibman ( 2001 )

REVISED DECEMBER 13, 2001
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________________
No. 00-20898
__________________________
The Matter of: MICHAEL ZIBMAN; JAMIE BAILEY ZIBMAN, Debtors
MICHAEL ZIBMAN; JAMIE BAILEY ZIBMAN
Appellees
versus
RODNEY D. TOW, Trustee
Appellant
___________________________________________________
Appeal from the United States District Court
For the Southern District of Texas
___________________________________________________
September 28, 2001
Before JOLLY, WIENER, and SMITH, Circuit Judges.
WIENER, Circuit Judge
Appellant Rodney Tow, Trustee, appeals the order of the United
States District Court affirming the final order of the United
States Bankruptcy Court for the Southern District of Texas. The
Bankruptcy court’s order denied the Trustee’s objection to the
claim of exemption for proceeds from the pre-petition sale of the
homestead filed by Appellees, Debtors Michael and Jamie Zibman,
holding, inter alia, that because the Zibmans’ bankruptcy petition
1
was filed during the six months in which proceeds from the sale of
a homestead enjoy protection from creditors under Texas law, the
proceeds remained permanently exempt from the bankruptcy estate.
Because the facts and the law applicable on the date that a
petition for bankruptcy is filed determine the exemptions available
to a debtor, and because the 6-month time limit is an integral
feature of Texas’s statutory exemption for proceeds from the sale
of a homestead, we reverse the district court’s order, render
judgment for the Trustee, and remand this matter to the bankruptcy
court for continued proceedings consistent herewith.
I. Facts and Proceedings
The facts in this case are simple and basically uncontested.
The Zibmans owned two jewelry stores in Texas, one in San Antonio,
and one in Houston. In 1998, they began having financial
difficulty, and in October 1998, they closed the San Antonio store.
Michael moved to Massachusetts to work in the jewelry business,
while Jamie remained in Texas to manage their Houston store. On
November 27, 1998, the Zibmans sold their Houston home and placed
the proceeds from the sale ($120,665.23) in a general, unsegregated
account that already held approximately $8,500.1 In January 1999,
the Zibmans closed the Houston store, and on February 5, 1999,
Jamie moved to Massachusetts to join Michael. Four days later, on
1
Between the date of the house sale and the Zibmans’ filing
for bankruptcy, the Zibmans wrote checks from this account, and
deposited other funds into it.
2
February 9, 1999, the Zibmans filed for bankruptcy protection under
Chapter 7, claiming as exempt the full amount of the proceeds from
the sale of their Houston homestead. On the same day, the Zibmans
moved into a townhome in Massachusetts under a 6-month lease. The
Zibmans both testified that they had no intention of reinvesting
the proceeds in a Texas homestead within six months following the
date of the sale or in the foreseeable future, and they did not, in
fact, purchase another Texas homestead within the 6-month period.
In May 1999, just over six months after the Zibmans had sold
their home, the Trustee objected to the Zibmans’ claimed exemption
of the sale proceeds on the alternative grounds that (1) under
Texas law, the proceeds from a homestead sale that have not been
reinvested in another Texas homestead within six months after the
sale cease to be exempt from creditors’ claims; and (2) the Zibmans
had waived the exemption of the proceeds by abandonment and by
commingling the proceeds with other funds. The bankruptcy court
and, on appeal, the district court, relied on the “snapshot” rule2
to allow the exemption as permanent, that is, no longer subject to
automatic expiration upon failure to reinvest within six months.
The court also held that the debtors had not waived the exemption
as of the date the petition was filed either through abandonment or
by commingling the sale proceeds with other funds. The Trustee
2
See White v. Stump, 266 U.S. 310, 312 (1924) (explaining
that the “state laws existing when the [bankruptcy] petition is
filed [are] the measure of the right to exemptions”).
3
timely appealed the district court’s order affirming the bankruptcy
court.
II. Analysis
A. Jurisdiction and Standard of Review
District courts’ jurisdiction to hear appeals in bankruptcy
cases encompasses final judgments, orders, and decrees, as well as
certain interlocutory orders and decrees.3 Courts of appeals, in
turn, have jurisdiction to hear bankruptcy appeals, but the
appellate courts’ jurisdiction is limited to “all final decisions,
judgments, orders, and decrees” of district courts or a bankruptcy
appellate panel.4 An order that grants or denies an exemption is
deemed a final order for the purpose of 28 U.S.C. § 158(d).5
Determination whether an exemption from the bankruptcy estate
exists is a question of law, which we review de novo.6
B. Exemption of Proceeds from the Sale of a Homestead under Texas
Law
The bankruptcy and district courts determined that the
Zibmans’ filing of a bankruptcy petition during the 6-month period
3
28 U.S.C. § 158(a).
4
28 U.S.C. § 158(d)
5
In re England, 975 F.2d 1168, 1172 (5th Cir. 1992).
6
Id.4
in which proceeds from the sale of a homestead enjoy protection
from creditors under Texas law froze the exemption as it existed on
the date of filing. These courts reasoned that, on that one day,
the exemption was in existence, and subsequent events — here, the
expiration of the balance of the 6-month period without reinvesting
the proceeds — could not retouch the snapshot. The Trustee
contends that this determination was error because the 6-month
limit of the exemption for proceeds is an integral feature of the
Texas law “applicable on the date of the filing of the [bankruptcy]
petition.”7 Therefore, reasoned the Trustee, this essential
element of the exemption must continue in effect even during the
pendency of a bankruptcy case. We agree with the Trustee.8
Under the Bankruptcy Code, the commencement of a bankruptcy
case creates an estate comprising all legal and equitable interests
in property (including potentially exempt property) of the debtor
as of that date.9 The debtor may have certain property exempted
from the bankruptcy estate by electing to take advantage of either
the federal exemption provisions in the Bankruptcy Code or those
7
11 U.S.C. § 522(b)(2)(A).
8
Because we conclude that, barring tolling, the exemption
for the proceeds expires after six months, regardless of the
intervening petition filing, we do not reach the Trustee’s
additional points of error relating to waiver of the exemption by
abandonment of the proceeds or by commingling of the proceeds
with other funds.
9
11 U.S.C. § 541; Owen v. Owen, 500 U.S. 305, 308 (1991);
In re Reed, 184 B.R. 733, 737 (Bankr. W.D. Tex. 1995).
5
provided under state law.10 As to the state-law alternative, the
Bankruptcy Code provides the exemption for
any property that is exempt under...State or
local law that is applicable on the date of
the filing of the petition at the place in
which the debtor’s domicile has been located
for the 180 days immediately preceding the
date of the filing of the petition, or for a
longer portion of such 180-day period than in
any other place....11
As the Supreme Court noted in Owen v. Owen,12 “[n]othing in
subsection (b) [of § 522] (or elsewhere in the Code) limits a
State’s power to restrict the scope of its exemptions; indeed, it
could theoretically accord no exemptions at all.”13 Any exemptions
claimed, however, are determined by the facts and the law as they
exist on the date of filing the bankruptcy petition.14 This focus
10
11 U.S.C. § 522(b) (“[A]n individual debtor may exempt
from property of the estate the property listed in either
paragraph (1) [the list of federal exemptions] or, in the
alternative, paragraph (2) [the provision allowing the
application of state law].”).
11
11 U.S.C. § 522(b)(2)(A).
12
500 U.S. 305 (1991).
13
Id. at 308.
14
See White v. Stump, 266 U.S. 310, 312 (1924) (“[The
Bankruptcy Code] makes the state laws existing when the petition
is filed the measure of the right to exemptions.”); In re
Sandoval, 103 F.3d 20, 23 (5th Cir. 1997) (holding that “facts as
they existed on the date of the original bankruptcy petition,”
not on the date of conversion from Chapter 13 to Chapter 7
bankruptcy, applied); In re John Taylor Co., 935 F.2d 75, 78 (5th
Cir. 1991) (“Taylor’s homestead exemption must...be determined by
reference to the law existing in 1979 — the time of the filing of
the petitions.”).
6
on the status as of the date of filing is commonly referred to as
the “snapshot” approach to determining the extent of the bankruptcy
estate and the scope of the exemptions.
When the Zibmans filed their bankruptcy petition on February
9, 1999, they exercised the § 522 option and elected to claim
exemptions offered by Texas state law. Now as in February of 1999,
Texas law provides a homestead exemption, as follows:
41.001. Interests in Land Exempt from Seizure
(a) A homestead...[is] exempt from seizure
for the claims of creditors except for
encumbrances properly fixed on homestead
property.
....
(c) The homestead claimant’s proceeds of a
sale of a homestead are not subject to seizure
for a creditor’s claim for six months after
the date of sale.15
As noted above, the Zibmans sold their Texas homestead in late
November 1998, and filed for bankruptcy just over three months
later, in early February 1999. When, by May 1999, the 6-month
statutory protection period had expired without the Zibmans’ having
reinvested their homestead sale proceeds in a new Texas homestead,
the Trustee objected to the exemption of the proceeds. In
rejecting the Trustee’s objection, the bankruptcy court stated
that, “[o]n the petition date, these funds were exempt. Post
petition acts or failures to act does [sic] not effect [sic] the
15
Tex. Prop. Code § 41.001.
7
exempt status.”
In reaching its conclusion, the bankruptcy court cited In re
Harlan,16 a 1983 Bankruptcy Court case that also involved the filing
of a bankruptcy petition during the 6-month period in which
proceeds from the sale of a homestead continued to enjoy protection
under the Texas statute. The Harlan court in turn relied on White
v. Stump17 to arrive at its holding that “the debtors’ homestead
proceeds were exempt on the date that they filed
their...petition...because their petition was filed within six
months of the date of the sale of their homestead[,]” and that
“because the substantive rights of the parties were fixed on the
date of the filing of the petition the proceeds must, therefore, be
allowed as exempt, regardless of what use the debtors might make of
the proceeds after the date of the filing of their petition.”18 As
the following analysis will show, White v. Stump introduced the
“snapshot” theory, but both courts misapplied the holding of White
to this fact pattern. A later Supreme Court case, Myers v.
Matley,19 illustrates the appropriate refinement of White when the
state law in question includes a condition on its application.
In Myers v. Matley, the Supreme Court refined White’s snapshot
16
32 B.R. 91 (Bankr. W.D. Tex. 1983).
17
266 U.S. 310 (1924).
18
Harlan, 32 B.R. at 93.
19
318 U.S. 622 (1943).
8
principle, analyzing a slightly more complex Nevada state law
situation. As in White, the state law provided that either member
of a married couple could file a declaration to create a homestead
exemption, and, as in White, the debtors attempted to file the
declaration after a petition in bankruptcy was filed against the
debtor. The Myers Court did not blindly apply White with a broad
brush and deny the debtors’ attempt to file the declaration,
however. Instead, it reviewed Nevada law and discovered that “the
settled law of the State entitles the debtor to his homestead
exemption if the selection and recording occurs at any time before
actual sale under execution.” The Court linked to this the
observation that “under the theory of the present [Bankruptcy] Act,
... [t]he trustee is vested not only with the title of the bankrupt
but clothed with the right of an execution creditor with a levy on
the property which passes into the trustee’s custody.”20 From this
the Myers Court concluded that, taking all facets of Nevada law
into account, the post-petition declaration should be allowed,
because state law allowed such declarations after levy, up until
the execution sale:
In conformity to the principle announced in
White v. Stump, that the bankrupt’s right to a
homestead exemption becomes fixed at the date
of the filing ... and cannot thereafter be
enlarged or altered by anything the bankrupt
may do, it remains true that, under the law of
Nevada, the right to make and record the
20
Myers, 318 U.S. at 627.
9
necessary declaration of homestead existed in
the bankrupt at the date of filing the
petition, as it would have existed in case a
levy had been made upon the property.21
Myers thus confirms the basic holding from White v. Stump that the
law and facts existing on the date of filing the bankruptcy
petition determine the existence of available exemptions, but flags
the important reminder that it is the entire state law applicable
on the filing date that is determinative. Courts cannot apply a
juridical airbrush to excise offending images necessarily pictured
in the petition-date snapshot.
The bankruptcy and district courts did not apply the entire
Texas law that is applicable in the instant case. Instead, their
denial of the Trustee’s objection to the exemption in the instant
case, “freezing” the exemption for the proceeds simply because it
was in effect at the date the petition was filed, effectively read
the 6-month limitation out of the statute, and transformed an
explicitly limited exemption into a permanent one. This
transgresses the teaching of Myers that the entire state law
applicable on the date of filing must be considered.
In a case virtually identical to this one, the Ninth Circuit
rejected the debtor’s similar attempt to enlarge the homestead
exemption, saying that, “[a]cceptance of the debtor’s position
would frustrate the objective of the California homestead exemption
21
Id. at 628 (emphasis added).
10
and the bankruptcy act itself, which limits exemptions to that
provided by state or federal law.”22 As observed by the Owen Court,
a state may choose not to provide exemptions at all, or it may
provide exemptions limited as it sees fit. When a debtor elects to
avail himself of the exemptions the state provides, he agrees to
take the fat with the lean; he has signed on to the rights (like
the post-petition right to file in Myers) but also to the
limitations (like the temporal element of the reinvestment feature
of California’s homestead exemption in Golden) integral in those
exemptions as well. In Texas, the 6-month limitation is
inextricably intertwined with the exemption the state has chosen to
provide for proceeds from the sale of the homestead. As an Oregon
bankruptcy court so aptly observed, “This court finds nothing in
the Bankruptcy Code that requires or allows it to fragment the
state law in this manner to grant a benefit to the debtors they
would not have received if they had not filed bankruptcy.”23
Our decision today conforms with the objective of the Texas’s
exemption for proceeds from the sale of a homestead. In In re
England,24 we focused on this exemption, reviewing in particular the
legislative intent in providing the exemption. We expressly noted
22
In re Golden, 789 F.2d 698, 700 (9th Cir. 1986) (emphasis
added).
23
In re Earnest, 42 B.R. 395, 399 (Bankr. D. Ore. 1984).
24
975 F.2d 1168 (5th Cir. 1992).
11
in England that Texas law originally provided only for an exemption
of the homestead (that is, the real property itself), and that the
objectives of the exemption were to provide “a secure asylum of
which the family cannot be deprived by creditors,”25 and to “support
the public policy of preventing homelessness among Texas
residents.”26 Historically, the absence of an exemption of the
proceeds from the voluntary sale or exchange of the homestead
resulted in many persons being left homeless when they sold their
homestead with the intention of investing the proceeds in another
homestead.27 In response to this problem, the Texas Legislature
passed the proceeds exemption statute. As we announced in no
uncertain terms in England, “[t]he object of the proceeds exemption
statute was solely to allow the claimant to invest the proceeds in
another homestead, not to protect the proceeds, in and of
themselves.”28
When the Zibmans failed to invest the proceeds from the sale
of their Houston homestead in another Texas homestead within the
allotted time, the exemption on these proceeds evanesced by
operation of law. Allowing the intervening bankruptcy petition to
25
Id. at 1174 (quoting Herman Iken and Co. v. Olenick, 42
Tex. 195, 198 (1875)).
26
Id. at 1174.
27
Id.28
Id. at 1174-75 (first emphasis in original; second
emphasis added).
12
improve the Zibmans’ pre-petition exemption by expurgating the 6-
month clock and thereby freezing the exemption permanently would
not only require a fragmented reading of state law, but would
contravene the purpose of the exemption, transforming it into a
protection of the proceeds, in and of themselves. This we refuse
to do.
III. Conclusion
The Texas statute that provides an exemption for proceeds from
the sale of a homestead contains a temporal element that explicitly
limits the exemption to six months. When the Zibmans failed to
reinvest the proceeds in another Texas homestead within the
statutory time period, those proceeds lost their exemption,29
freeing the Trustee to reach the proceeds as part of the bankruptcy
29
The Zibmans contend that the Trustee is estopped from
reaching the proceeds at the end of the 6-month period because he
advised the Zibmans at the creditors’ meeting not to deplete the
proceeds until he could “figure out what to do.” This argument
might have merit on other facts, but has none here. There is no
record evidence that, but for the Trustee’s advice, the Zibmans
would have used to proceeds to invest in another homestead. On
the contrary, the record demonstrates that, by the time the
creditors’ meeting took place, Michael had already moved to
Massachusetts, Jamie had joined him, they had filed the
bankruptcy petition, and both had stated that they had no
intention of investing the proceeds in a Texas homestead within
the 6-month time frame. In fact, Michael Zibman stated at the
same meeting that, prior to the meeting, they (the Zibmans) had
been “advised not to touch [the proceeds,] not to do anything
with [them],” whereupon the Trustee stated, “Well, I am going to
let you and your attorney talk about that.” These flaccid facts
are indeed the classic reed too slender upon which to lean a
claim for estoppel.
13
estate.30 For the foregoing reasons, we reverse the district
court’s affirmance of the bankruptcy court’s judgment, render
judgment for the Trustee, and remand this matter to the bankruptcy
court for continued proceedings consistent herewith.
REVERSED, RENDERED, and REMANDED.
30
Although the Zibmans allude in their argument to the
possibility that the six months could be tolled during the
bankruptcy proceeding, they did not seek such tolling in the
bankruptcy court before the balance that remained on the 6-month
period at filing eventually ran out. We therefore do not address
that issue except to note that a Texas Court of Appeals has
allowed the six months to be tolled during periods of dispute.
See Jones v. Maroney, 619 S.W.2d 296 (Tex. Civ. App.-- Houston
[1st Dist] 1981).
14