Hull v. Rockwell

United States Court of Appeals
For the First Circuit
No. 19-2074
IN RE JEFFREY J. ROCKWELL,
Debtor.
JEFFREY J. ROCKWELL,
Appellee,
v.
NATHANIEL RICHARD HULL,
Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. John A. Woodcock, Jr., U.S. District Judge]
Before
Thompson, Lipez, and Kayatta,
Circuit Judges.
Nathaniel R. Hull and Verrill Dana LLP on brief for the
appellant.
Christopher J. Keach and Molleur Law Office on brief for the
appellee.
July 30, 2020
THOMPSON, Circuit Judge. 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 us. Holding that the Bankruptcy Code dictates that
Rockwell's homestead exemption maintains the status it held on the
day Rockwell filed his bankruptcy petition, we affirm.
BACKGROUND
In 2001, Rockwell purchased property on B Street in South
Portland, Maine. He still owned that property and was living there
on August 19, 2015, when he filed for Chapter 13 bankruptcy. As
he was entitled to under Maine law, 14 M.R.S. § 4422(1), Rockwell
claimed a homestead exemption for $47,500 of equity for the B
Street property.1 As part of his Chapter 13 reorganization plan,
1 A "homestead" is "[t]he house, outbuildings, and adjoining
land owned and occupied by a person or family as a residence."
Homestead, Black's Law Dictionary (11th ed. 2019). A "homestead
exemption" is a tool a debtor can use to protect his homestead
(or, depending on the state, a portion of the proceeds from the
sale of it) from creditors. See Homestead Law, Black's Law
Dictionary (11th ed. 2019).
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Rockwell proposed to pay the owner of the B street mortgage (i.e.,
one of his creditors) 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.
By December 2016, Rockwell's plans to retain the B Street
Property had changed. Specifically, 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. At the hearing on
Rockwell's motion to sell the property, the Chapter 13 trustee
expressed concern about Rockwell's proposed sale price, but
nonetheless expected the court to grant the motion.
The bankruptcy court granted Rockwell's motion and
ordered him to use the money from the sale to pay the closing costs
and the mortgage. Rockwell was to pay any remaining, non-exempt
funds from the sale to the Chapter 13 trustee to pay down
Rockwell's debt.
On March 6, 2017, Rockwell finalized the sale of the B
Street property. After paying the closing costs and the lender,
$51,682.87 was left. He kept $47,500 (his homestead exemption as
allowed by Maine law) and paid the remaining $4,182.87 to the
Chapter 13 trustee. The Chapter 13 trustee did not object.
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After the sale, Rockwell still lived at the B Street
property, but he planned to move into a home on Bancroft Court, in
Portland. Though Rockwell did not own the Bancroft Court property,
in the months after the sale and prior to his move, he contributed
to its upkeep. Specifically, Rockwell spent $18,806.23 of his
homestead exemption on paint, tile, fuel oil, carpet, plumbing,
tree-cutting services, and other miscellaneous repairs and
supplies, all for the Bancroft Court property, and on moving
expenses to move his own belongings from the B Street property to
the Bancroft Court property. Then, on August 7, 2017, Rockwell
converted his Chapter 13 case to a Chapter 7 case. Rockwell moved
into the Bancroft Court property in September 2017 and continued
to spend the money from his homestead exemption on repairs and
improvements to the Bancroft Court property.
A few months later, the Chapter 7 trustee, Hull, objected
to Rockwell's use of the homestead exemption. 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, from Hull's perspective,
the previously protected money -- specifically, the $28,693.77
that Rockwell had not yet spent when he converted his case to a
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Chapter 7 case -- should become part of the bankruptcy estate and
be used to pay off Rockwell's creditors.2
From Rockwell's point of view, he could take a homestead
exemption of up to $47,500 when he first filed for bankruptcy in
2015 because he owned his residence at the time. Rockwell argued
that the Bankruptcy Code and First Circuit precedent require that
the bankruptcy court apply 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
(as if someone took a snapshot of the situation, leaving it frozen
in time) to determine if assets are properly exempted from the
bankruptcy estate.
The bankruptcy judge held a bench trial to resolve Hull's
objection. 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."
On September 4, 2018, Hull appealed to the United States
District Court for the District of Maine, which affirmed the
2 Pursuant to 11 U.S.C. § 348(f), the trustee could only seek
the $28,693.77 remaining at the time of conversion because there
were no allegations of bad faith in the conversion.
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bankruptcy court's decision. Hull filed a timely appeal to this
court on October 22, 2019.
For the reasons that follow, we now affirm.
OUR TAKE
Before turning to the merits of Hull's appeal, we will
give the reader some context on the Bankruptcy Code and law
relevant to the instant litigation. When we review a district
court's decision affirming a bankruptcy court's decision, as we do
here, we review the bankruptcy court's decision directly. In re
Sheedy, 801 F.3d 12, 18 (1st Cir. 2015). We review the bankruptcy
judge's legal conclusions de novo and factual conclusions for clear
error. In re Goguen, 691 F.3d 62, 68 (1st Cir 2012).
A. The Bankruptcy Code Framework
When a debtor files for bankruptcy, his interests in
property are either compiled into the bankruptcy "estate" from
which (to the extent the estate can afford) his creditors will be
paid, or those interests are exempted from the estate for the
debtor to keep. See 11 U.S.C. § 541. When the estate is created,
a combination of federal and state law determines which of the
debtor's assets are exempted (and will remain safe from creditor
collection) and which belong to the estate (and will be lost to
the debtor). See id. § 522(b); Owen v. Owen, 500 U.S. 305, 306
(1991). "[F]ederal law provides no authority for bankruptcy courts
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to deny an exemption on a ground not specified in the Code." Law
v. Siegel, 571 U.S. 415, 425 (2014) (emphasis omitted).
Pursuant to 11 U.S.C. § 522(b)(3)(A), a debtor can
exempt from the bankruptcy estate any property permitted by his
state of residence. Among those exemptions is an exemption
commonly called a "homestead exemption" which protects, to varying
extents, a debtor's interest in their home. See Homestead Law,
Black's Law Dictionary (11th ed. 2019). Maine, Rockwell's state
of residence, permits debtors to protect their "aggregate
interest, not to exceed $47,500 in value, in real or personal
property that the debtor . . . uses as a residence." 14 M.R.S.
§ 4422(1)(A).
Exemptions are determined at the time the debtor files
for bankruptcy. White v. Stump, 266 U.S. 310, 313 (1924); Myers
v. Matley, 318 U.S. 622, 628 (1943) ("[T]he bankrupt's right to a
homestead exemption becomes fixed at the date of the filing of the
petition in bankruptcy . . . ."); In re Cunningham, 513 F.3d 318,
318 (1st Cir. 2008). This maxim is called the "snapshot" rule
because the debtor's financial situation is frozen in time, as if
someone had taken a snapshot of it.3 In re Awayda, 574 B.R. 692,
3Though we have rarely used the term "snapshot" in this
circuit, see In re Rudler, 576 F.3d 37, 50 (1st Cir. 2009), we
have regularly recognized the concept. See, e.g., In re
Cunningham, 513 F.3d 318, 324 (1st Cir. 2008) ("[I]t is a basic
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697 (Bankr. C.D. Ill. 2017) (noting the "snapshot rule [] controls
the moment in time upon which a debtor's right to claim exemptions
is based"). When the snapshot rule applies to an asset and the
snapshot is "complete," the asset will retain whatever status
(i.e., exempt or part of the estate) it had when the debtor filed
for bankruptcy and cannot be altered by circumstances that change
later. See In re Williams, 515 B.R. 395, 401 (Bankr. D. Mass.
2014) (explaining that the snapsnot rule "focus[es] on the facts
and law as they exist on the petition date"); see also In re
Cunningham, 513 F.3d at 318. Other times, the snapshot is
"incomplete," meaning that the right circumstances could later
alter the status of that asset relative to the bankruptcy estate,
much like one can edit a snapshot after it has been taken. See,
e.g., 11 U.S.C. § 541(a)(5) (requiring that up to 180 days after
filing of the bankruptcy petition, property that the debtor
acquires by bequest, devise, inheritance, divorce, life insurance,
or death benefit becomes part of the estate).
B. Chapter 13 and Chapter 7 Bankruptcy
Chapter 13 bankruptcy, the type of bankruptcy Rockwell
entered when he first filed in August of 2015, is an entirely
voluntary process. Harris v. Viegelahn, 135 S. Ct. 1829, 1835
principle of bankruptcy law that exemptions are determined when a
petition is filed.").
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(2015). During a Chapter 13 bankruptcy, a debtor contributes some
of the income he earns after filing to the estate. 11 U.S.C.
§ 1306. A Chapter 13 debtor retains control of his property and
works out a plan with the court to use the money from the estate
to pay back his debt over three to five years. Id. § 1322.
If a debtor proceeds under Chapter 7, the chapter to
which Rockwell converted his bankruptcy in 2017, all of his assets,
other than the ones exempted from the estate per § 522, become a
part of the estate. Id. § 541. The Chapter 7 trustee then sells
or otherwise disposes of the debtor's property and pays off
creditors from the estate. Id. §§ 704, 726. "Crucially, however,
a Chapter 7 estate does not include the wages a debtor earns or
the assets he acquires after the bankruptcy filing." Harris, 135
S. Ct. at 1835 (emphasis in original).
A debtor may convert his bankruptcy from a Chapter 13 to
a Chapter 7 proceeding at any time. 11 U.S.C. § 348. "Absent a
bad-faith conversion, § 348(f) limits a converted Chapter 7 estate
to property belonging to the debtor 'as of the date' the original
Chapter 13 petition was filed." Harris, 135 S. Ct. at 1837.
C. Analysis of the Present Case
1. The Code Controls this Analysis
Having erected the applicable legal framework, we now
turn to the issue before us. No one disputes that on the day
Rockwell filed for bankruptcy, he properly protected $47,500 of
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his property from the bankruptcy estate by claiming Maine's
homestead exemption, 14 M.R.S. § 4422(1). No one disputes that
Rockwell sold the property and pocketed the $47,500 without
spending it on a new Maine homestead within six months of the sale,
which Maine law requires.4 The sole dispute is whether that $47,500
(or what Rockwell didn't spend of it) lost its protection when
Rockwell failed to reinvest in a homestead within the six-month
limitation and should be available to pay creditors.
At the outset, we recognize that the Supreme Court
instructs that the rules of the Bankruptcy Code have the first and
final say, even where equity might demand a different result. In
Law v. Siegel, the Supreme Court held that the bankruptcy court
had improperly awarded the value of the debtor's homestead
exemption to pay for the Chapter 7 trustee's administrative
expenses, even though the trustee generated those expenses solely
when responding to the debtor's deliberate fraud. 571 U.S. at
422. The Court explained that the Bankruptcy Code permits debtors
4
As detailed above, Rockwell continued to live at the B
Street property until September 2017, when he moved into the
Bancroft Court residence. No one disputes that he has no ownership
interest in this property or that Rockwell spent his B Street
proceeds on repairs and other care for the Bancroft Court property.
Rockwell argued to the bankruptcy court that this qualifies as
investing in a homestead under Maine law, so that money is still
exempt from the estate. The bankruptcy court did not resolve this
argument because it determined that the B Street proceeds were
exempt, regardless of how Rockwell later spent them. For the same
reason, we do not address that argument here.
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to claim a homestead exemption and for the value of that exemption
to be protected from paying, among other things, the administrative
expenses of the estate. Id. The debtor in that case properly
claimed the homestead exemption and no one filed a timely
objection. Id. at 423. Despite the debtor's post-petition
conduct, which included submitting fraudulent documents to the
bankruptcy court in an effort to wrest a share of the estate back
to himself, and despite the fact that this fraud directly caused
the trustee to incur approximately half a million dollars in legal
fees, the Code did not permit the bankruptcy court to make the
debtor's homestead exemption available to defray those legal fees.
Id. at 418-22, 427-28 (explaining that the bankruptcy court "may
not contravene express provisions of the Bankruptcy Code by
ordering that the debtor's exempt property be used to pay debts
and expenses for which that property is not liable under the
Code"). The bankruptcy court's mandate, therefore, is to
"reach . . . an end result required by the Code." Id. at 426.
2. Exemptions are Analyzed on the date the Debtor Files for
Bankruptcy
With this framing in mind, we recognize that the Code
(which we know is supreme here) instructs that the estate does not
begin anew when a debtor converts a Chapter 13 bankruptcy
proceeding into a Chapter 7 proceeding. 11 U.S.C. § 348(a)
(conversion from Chapter 13 to Chapter 7 "does not effect a change
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in the date of the filing of the petition, the commencement of the
case, or the order for relief"). "[N]othing in the Code den[ies]
debtors funds that would have been theirs had the case proceeded
under Chapter 7 from the start." Harris, 135 S. Ct. at 1838. So,
without a doubt, we examine Rockwell's claim of a homestead
exemption on the date he filed for his Chapter 13 bankruptcy. As
previously noted, no one disputes that Rockwell properly claimed
Maine's homestead exemption on that date.
3. The Complete Snapshot Rule Applies
Therefore, the final concept we must wrestle with is
whether to apply the partial or complete snapshot rule: that is,
we consider whether to examine Rockwell's claimed homestead
exemption as unchanging, in accordance with the complete snapshot
rule, or apply the partial snapshot rule and afford Rockwell the
homestead exemption only so far as he maintains his homestead.
Again, the Code answers this question for us. "Property that is
properly exempted under § 522 is immunized against liability for
prebankruptcy debts, subject only to a few exceptions." In re
Cunningham, 513 F.3d at 323; accord 11 U.S.C. § 522(c)(1)-(3).
The Code enumerates those exceptions, where property that is
properly exempt on the day of filing (here, the day the snapshot
is taken) can be later incorporated into the estate (because the
snapshot was only partial and can therefore be edited). See 11
U.S.C. § 522(c). "Those exceptions include: (1) debt from certain
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taxes and customs duties, (2) debt related to domestic support
obligations, (3) liens that cannot be avoided or voided, including
tax liens, and (4) debts for a breach of fiduciary duty to a
federal depository institution." In re Cunningham, 513 F.3d at
323. Therefore, we must conclude that the complete snapshot rule
applies to homestead exemptions taken pursuant to § 522, where
none of the statute's enumerated exceptions applies. None of these
explicit exceptions applies to Rockwell's case, nor does Hull
contend that one does, so Rockwell's homestead exemption taken on
the day he filed for bankruptcy must be viewed as unchanging, even
in the face of his later sale of the property.
This result lines up with the Code's priority of
providing a "fresh start" for debtors. "[W]hile a Chapter 7 debtor
must forfeit virtually all his prepetition property, he is able to
make a 'fresh start' by shielding from creditors his postpetition
earnings and acquisitions." Harris, 135 S. Ct. at 1835. Debtors
can best make a fresh start where they can make healthy financial
choices moving forward, knowing what property is out of the reach
of the pre-petition creditors. Indeed, "exemptions in bankruptcy
cases are part and parcel of the fundamental bankruptcy concept of
a fresh start." Schwab v. Reilly, 560 U.S. 770, 791 (2010)
(internal quotation marks and citations omitted); accord In re
Cunningham, 513 F.3d at 324 ("The efficacy of the fresh start
policy requires finality that allows a debtor to rebuild his life
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without fear of lingering creditors."). "[A] central purpose of
the [Bankruptcy Code] is to provide a procedure by which certain
insolvent debtors can reorder their affairs, make peace with their
creditors, and enjoy 'a new opportunity in life with a clear field
for future effort, unhampered by the pressure and discouragement
of preexisting debt.'" Grogan v. Garner, 498 U.S. 279, 286 (1991)
(quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)). By
protecting Rockwell's exempt property, which was properly exempted
on the day of filing, from later being made available to creditors,
the bankruptcy court in this case supported Rockwell in achieving
the "fresh start" that the Code prizes.
We addressed this aspect of the Code before in In re
Cunningham, involving a Chapter 7 filing, where we considered
"whether the post-petition sale of the debtor's home, for which he
had obtained a homestead exemption under the law of Massachusetts
protecting it from creditors, cause[d] the proceeds of the sale to
lose their exempt status under the Bankruptcy Code and become
subject to pre-petition, nondischargeable debt." In re
Cunningham, 513 F.3d at 320. Cunningham, the debtor in that case,
had properly claimed a homestead exemption under Massachusetts
law. Later, he sold his home, made approximately $150,000 from
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the sale, and moved to Florida.5 Id. at 322. One of Cunningham's
creditors moved to have the proceeds from the sale used to satisfy
Cunningham's debt. Id. at 321-22. The creditor argued, similar
to Hull's argument here, that the once-exempt interest in the
homestead was proper at the time Cunningham filed for bankruptcy,
but once he sold the property, it no longer enjoyed the protection
of Massachusetts' homestead exemption and therefore could be
collected to satisfy Cunningham's debts. Id. at 322. When
analyzing that case, we noted that § 522(c) has an "immunizing
effect" on any exempt assets, other than those explicitly excepted,
and those exempt assets are therefore exempt from pre-petition
debt collection during and after the bankruptcy. Id. at 323-24.
Though we did not address the rule by name, our approach in In re
Cunningham was compatible with the complete snapshot rule, when we
held that because the exemption was proper on the day Cunningham
filed for bankruptcy, Cunningham's interest in that asset was
"permanently immuniz[ed]" from pre-petition debt collection, even
if he later sold that homestead. Id. at 322-325. Our analysis
does not differ here.
5The Massachusetts homestead exemption in place at the time
did not exempt proceeds recovered from a sale of the homestead.
See In re Cunningham, 513 F.3d at 321.
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4. Hull's Concerns
Trying to distinguish our Cunningham holding, Hull urges
us to view this as a distinct Chapter 13 issue because Rockwell
sold his home while proceeding in that type of bankruptcy. He
tells us that "[t]he differences between a [C]hapter 7 case and a
[C]hapter 13 case bear on the outcome of this appeal." According
to Hull, our analysis of the homestead exemption should include
changes based on post-petition activity because after Rockwell
filed his petition, "he retained, exclusive of the [C]hapter 13
trustee, possession of the house and the attendant decision-making
authority over what to do with it and the proceeds arising from
its sale."6 Essentially, the complete snapshot rule does not apply
to a Chapter 13 proceeding because under Chapter 13, the debtor
maintains control of his property.
The Code continues to inform our approach and we find
this argument unavailing. The Code considers the transition from
6 Though not dispositive, we disagree with Hull's
characterization of Rockwell's control. While it is true that a
hallmark of Chapter 13 proceedings is that the debtor retains
possession of his property, see 11 U.S.C. §§ 1322, 1327, the
bankruptcy court still exercises control over the debtor. Once
the court confirms the debtor's plan, the debtor is bound by the
plan's provisions, id. § 1327(a), and the debtor must obtain the
court's approval for any modification of the confirmed plan. Id.
§ 1329. In order to discharge his debt (a debtor's goal in
bankruptcy), absent approval by the court under special
circumstances, the debtor must "complet[e] . . . all payments under
the [Chapter 13] plan." Id. § 1328(a).
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a Chapter 13 to a Chapter 7 case and specifies how to examine these
cases: we look to the date the petition was filed when evaluating
exemptions. 11 U.S.C. § 348(f). The bankruptcy court looks at
the debtor's assets on the conversion date (as Hull urges us to do
here), rather than the petition date only when the debtor converts
in bad faith. Id. § 348(f)(2); see Harris, 135 S. Ct. 1837-38.
Hull does not allege Rockwell converted to a Chapter 7 bankruptcy
in bad faith and the bankruptcy court made no such finding. The
Code does not contain any other provisions (and Hull does not cite
any) that instruct the bankruptcy court to treat a Chapter 7 debtor
differently if he converted his case from Chapter 13. See Law,
571 U.S. at 425 ("[f]ederal law provides no authority for
bankruptcy courts to deny an exemption on a ground not specified
in the Code." (emphasis omitted)). Rather, the Code values the
right of Chapter 13 debtors to convert to Chapter 7 proceedings
and specifies that the conversion right cannot be waived. 11
U.S.C. § 1307(a).
We are unpersuaded by Hull's implication that we should
ignore the connection between Chapter 13 and Chapter 7 proceedings.
"Many debtors . . . fail to complete a Chapter 13 plan
successfully." Harris, 135 S. Ct. at 1835 (citing Katherine
Porter, The Pretend Solution: An Empirical Study of Bankruptcy
Outcomes, 90 Tex. L. Rev. 103, 107–111 (2011) for the proposition
that only one third of Chapter 13 cases results in the debtor
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successfully discharging debt). The simple fact of this case is
that Rockwell did convert his case to a Chapter 7 bankruptcy, as
many Chapter 13 debtors ultimately do.7 See id. As a result, we
must view this as what it is: a Chapter 7 case.
Hull further argues that our holding will effectively
read the six-month limitation out of the Maine statute in
bankruptcy proceedings. Where, as here, the debtor exempts their
homestead under Maine law and then later sells the homestead,
Maine's six-month period for protecting the value of that homestead
would not apply. From our perspective, that is what the Code
requires. "To interpret § 522(c) as conferring merely an ephemeral
exemption, subject to post-termination events, would undermine
that basic principle and its relationship to the fresh start policy
of the Bankruptcy Code." In re Cunningham, 513 F.3d at 324; see
Myers, 318 U.S. at 628 ("[A debtor's] right to a homestead
exemption becomes fixed at the date of the filing of the petition
in bankruptcy and cannot thereafter be enlarged or altered by
anything the [debtor] may do."). As one bankruptcy court aptly
put it: "[a] debtor is not required to maintain exempt property
in its exempt state indefinitely after filing in order to avoid a
7
We do not decide whether sale proceeds continue to be
exempted under the Maine homestead exemption if the six-month
period expires after the petition date in a Chapter 13 case where
there is no conversion to Chapter 7.
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retroactive loss of the exemption." In re Hageman, 388 B.R. 896,
900 (Bankr. C. D. Ill. 2008).
Finally, Hull reminds us that other circuits that have
addressed similar questions have reached a result that is (or
seems) at odds with the result we reach here. Hull points us to
the Ninth Circuit's approach in In re Jacobson where a Chapter 7
debtor claimed a homestead exemption under California law, a
creditor forced the sale of the homestead during the bankruptcy,
and the debtor did not reinvest the proceeds of the sale during
the six-month period, as required by California's homestead
statute. In re Jacobson, 676 F.3d 1193, 1197 (9th Cir. 2012).
The Ninth Circuit held that the sale's proceeds belonged to the
estate, once the six-month reinvestment period had passed. Id.
The Ninth Circuit purported to apply the snapshot rule, explaining
that the snapshot rule, in its view, incorporates "the entire state
law[,] includ[ing] a reinvestment requirement for the debtor's
share of the homestead sale proceeds." Id. at 1199. Hull also
relies upon the Fifth Circuit's approach in In re Frost, where a
Chapter 13 debtor exempted his homestead pursuant to Texas's
vanishing homestead law and then did not reinvest the proceeds
within the required time limit. In re Frost, 744 F.3d 384, 385
(5th Cir. 2014). The Fifth Circuit held that the debtor lost the
protection of the homestead exemption, declining to apply the
complete snapshot rule. Id. at 388 ("[O]nce a new homestead has
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been purchased, the funds become proceeds from the sale of a former
homestead, which fall outside the protection of the Texas statute."
(emphasis in original)).
We find these cases unpersuasive. Neither of these cases
addresses the Code's valued "fresh start" principles as
articulated in Harris, 135 S. Ct. 1829, or the Supreme Court's
admonishments in Law, 571 U.S. 415, that courts reach the result
required by the text of the Bankruptcy Code. The Ninth Circuit
issued its opinion in In re Jacobson in 2012, approximately two
years before having the benefit of the Supreme Court's guidance in
Law and three years before Harris. See In re Jacobson, 676 F.3d
at 1193. The Fifth Circuit issued its opinion in In re Frost one
day after the Supreme Court's decision in Law, but does not mention
that case, and approximately one year before the Supreme Court's
decision in Harris. See In re Frost, 744 F.3d at 384. We are, of
course, bound by Supreme Court precedent, not that of our sister
circuits, and reach our decision here in accordance with the
Supreme Court's guidance.
The outcome is also not altered by our own decision in
Howison v. Hanley, 141 F.3d 384 (1st Cir. 1998). In that case,
more than two years before filing for bankruptcy, the debtor
conveyed his interest in his homestead to his wife for no
consideration "with the admitted purpose of putting it beyond the
reach of his creditors." Howison, 141 F.3d at 385. The district
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court found that this was a fraudulent transfer and we affirmed.
Id. When analyzing that case, we summarized Maine's homestead
exemption statute, 14 M.R.S. § 4422, (the same statute at issue
here), and commented that if the debtor sells his homestead, he
retains the value of the homestead exemption, but only if he
reinvests in a new homestead in six months, as prescribed by the
statute. Id. at 386.
Howison is not on point. It does observe that under
Maine law proceeds received in the sale of an exempt homestead
lose the protection of the exemption, and thus become available to
creditors, if not reinvested in a residence within six months.
Id. We agree. Howison said nothing at all, though, about the
issue before us: what to do if the debtor files for bankruptcy
protection while the asset (whether home or proceeds of selling
the home) is still exempt under Maine law? Howison had no need to
say anything about that issue because the debtor in that case had
conveyed his interest in his residence well more than six months
before he petitioned for bankruptcy. See id. at 385. If there
had been any proceeds from that conveyance, the six-month homestead
exemption protection would have expired long before the debtor's
bankruptcy filing. So, it would have made no difference to the
debtor in Howison whether one takes a "snapshot" at the time of
petitioning because, by that time, the proceeds had already become
nonexempt and available to creditors. For that reason, this
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court's summary of Maine's homestead statute in Howison has no
bearing on the outcome of this case.
In some circumstances, perhaps even in this
circumstance, the result of this ruling will not prioritize the
debt owed to creditors. Yet, "Congress balanced the difficult
choices that exemption limits impose on debtors with the economic
harm that exemptions visit on creditors[,]" Schwab, 560 U.S. at
791, and "it is not for courts to alter the balance struck by the
statute." Law, 571 U.S. at 427.
WRAP UP
For the foregoing reasons, the district court's order is
affirmed. Costs awarded to Rockwell.
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