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Statutory Homestead Cap Is Doubled in Joint Bankruptcy Filings, At Least According To The 10th Circuit Court Of Appeals

bankruptcy homestead-thumb-256x200-16000.jpgJust like California, residents of Oklahoma may not opt to exempt property from the bankruptcy estate under the federal set of exemptions, but are limited to claiming exemptions under state law.

In the case of In re Nestlen, the Debtors filed a petition under Chapter 7 of the Bankruptcy Code on December 1, 2009. On their Schedule C, they claimed their homestead, which they valued at $275,000, as fully exempt under Oklahoma law. One of their creditors, Dykstra, objected to the exemption, arguing that the debtors had increased their equity in the property during the 1,215-day period prior to the Petition Date, and therefore their homestead exemption was limited in amount to $136,875 by virtue of 11 U.S.C. § 522(p).

11 U.S.C.S. § 522(p)(1) provides that a debtor may not exempt any amount of interest in a homestead that was acquired by the debtor during the 1215 day period preceding the date of the filing of the petition that exceeds in the aggregate $136,875 in value. Arguing that the Debtors were not entitled to exempt the entire value of their Homestead, Dykstra invoked § 522(p)(1), that caps equity acquired in the 1215 day period to $136,875.

Since the debtors paid down loans on their home within the 1215 days look back period, Dykstra argued that by investing non-exempt funds in their Homestead within the 1,215-day prepetition period the Debtors increased their equity in the Homestead in an amount in excess of the $136,875 ceiling established by § 522(p), and therefore the equity exceeding $136,875 was not exempt.

Debtors offered several arguments in rebuttable to Dykstra's objection, one of which was that the equity acquired during the look back period did not exceed the § 522(p) cap because the cap of $136,875 is doubled for joint debtors pursuant to § 522(m).

The 10th Circuit Court of Appeals held that because § 522(m) provides that all sections of § 522 "apply separately with respect to each debtor in a joint case," § 522(p)'s exemption cap of $136,875 must be doubled in this joint case.

California residents are subject to the 9th Circuit Court of Appeals as binding case law, not the 10th circuit. However, while not binding, the authority in the 10th circuit is persuasive. Since California, just like Oklahoma, has opted out of the federal system of exemptions, does this case mean the California homestead exemption is also doubled in joint bankruptcy petitions?

In California, according to California Code of Civil Procedure sections 704.720 - 704.730, if you are part of a "family unit", (for example married), under age 65, and have no disabilities, you are entitled to a homestead exemption of $75,000. According to the 10th Circuit, in a joint bankruptcy petition, you exemption would be $150,000.

As of the date of this post, I don't know of any 9th Circuit case that gives a definite answer to this question. One of two things will need to happen in order to get a definitive answer. A "test case" will need to be decided by the 9th Circuit or the United States Supreme Court will need to throw their hat in the ring.

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