In an interesting case out of California, the Ninth Circuit analyzed what is necessary to claim a homestead exemption.
Exemptions allow debtors to keep some property in bankruptcy, so that
debtors can get a fresh start and not be wholly destitute from a bankruptcy
filing. For example, a disabled or senior debtor can exempt $175,000 (it
used to be $150,000) in a house. In the Jacobson case, the debtor attempted
to exempt the full $150,000. Due to some unusual facts of the case, the
property was sold after the bankruptcy filing and the exempt funds paid
to the debtor. The state law requires that the debtor reinvest the funds
in a new homestead within 6 months. Normally, the exemptions are fixed
as of the filing of the bankruptcy case. So, the debtor argued, the exemptions
claimed at the inception of the case would apply and there was no requirement
to reinvest those funds posts-petition. The Ninth Circuit disagreed, stating
that the debtors did have to reinvest the funds.
This is a very unusual case, because normally the time limit for objecting
to exemptions would have run by the time any sale took place, and would
almost certainly have run by the time 6 months after the sale had passed.
That being said, debtors claiming a homestead exemption should be very
careful if there is going to be a sale of their property post-petition.