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  • Sarah Little

9th Circuit Make U Turn on Homestead Exemptions, Limiting Washington Homestead Exemption

In Wllson v. Rigby (in re Wilson) The 3-panel court appears to have departed from precedent to limit a Chapter 7 Debtor’s homestead exemption claim under Washington state law to the amount of exemption claimed and existing as of the petition date, and prevented her from increasing the exemption to the statutory limit to protect post-petition appreciation.

The court distinguishes Ninth Circuit precedent set by In re Alsberg and In re Gebhart both which appeared to say that post-petition appreciation inures the bankruptcy estate, subject to maximum available homestead exemption rights. They do so by a hyper-technical hair splitting maneuver: Washington’s homestead statute allows an exemption not to exceed the lesser of (1) the total net value of the [homestead] . . . or (2) the sum of one hundred twenty-five thousand dollars. They hold this amount is determined and fixed as of the petition date, not the sale date, in a bankruptcy context.

The hair splitting occurs when they contrast this language with California’s homestead statute, which allows a debtor to exempt a dollar amount (without reference to a limitation of actual net equity) based on a demographic profile. The lack of limitation in California is what gives a debtor the right to increase their exemption to the statutory limit available as of the petition date to protect post-petition appreciation.

Judge Huck, sitting by designation, offers a compelling dissent that painstakingly demonstrates why the majority has it wrong. He makes the point that the majority's distinction between Washington and California exemption language is without substance since, upon sale, any homestead exemption will always be limited to the lesser of the statutory amount or actual net equity. He shows himself as having a strong grasp of bankruptcy law and the policy purposes that support a more generous and consistent interpretation of exemption rights than the majority cares to give to the honest but unfortunate debtor.

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