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Homesteads in Chapter 7: when appreciation is a bad thing

The United States Court of Appeals for the Ninth Circuit just published an opinion that highlights the potential pitfalls of the homestead exemption. Wilson, the debtor, had originally claimed a $3,560 homestead exemption for her condo on her Chapter 7 bankruptcy schedules because that was her equity in her home as of the petition date. Her bankruptcy was a slow mover, and during the pendency of her case the value of her condo gradually increased from $250,000 to $412,500. Wilson tried to amend her bankruptcy schedules to increase her homestead amount and exempt more of her home’s (new) equity, but the trustee opposed. The Ninth Circuit held that Wilson’s claimed exemption was limited to the amount she was entitled to under Washington law as of the petition date, because the value of the exemption is fixed by reference to the date of filing of the petition. The Court carefully laid out how California’s homestead exemption laws – which are based on defined statutory figures – would have led to a different outcome. In California, a debtor can claim the full statutory amount even if his equity is less than that, and he can claim that full statutory amount if his equity increases post-petition.

The case is Wilson v. Rigby, and it can be found here:

Photo by Luke Stackpoole on Unsplash

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