9th Circuit Tweaks Exemption Rules

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.