BANKRUPTCY CASE LAW:
EXEMPT PROPERTY
The following is for the exclusive use of attorneys.  This firm does not make any representations as to the accuracy or current status of any case cited herein. 

The new bankruptcy law changed the debtor's right to use the exemptions of the state where they are filing their bankruptcy.  The debtor may use Arizona exemptions only if they lived in Arizona for the full 2 years before filing.  Otherwise there is a very complicated analysis of what exemptions apply.  There is the mother lode of information on this issue is Attorney John Bates Exemptions Express: http://www.exemptionsexpress.com/index.html

Homestead vs. acquisition of property, plus post-petition appreciation of realty.
In re: Greene, No. 07-16067 (US 9th Circuit Court of Appeals, October 5, 2009)
In debtor's appeal from the district court's order affirming a bankruptcy court's decision limiting the debtor's homestead exemption in his bankruptcy petition to $125,000 pursuant to 11 U.S.C. section 522(p), the order is affirmed in part where no pre-petition appreciation of the property at issue occurred. However, the order is reversed in part where "any amount of interest that was acquired," as used in section 522(p)(1), meant the acquisition of ownership of real property and the monetary cap in section 522(p) did not apply to property to which a debtor acquired title more than 1215 days before she or he filed a bankruptcy petition. Read more...

Converting non-exempt property into exempt:
In re: Addison, No. 07-2064, 07-2727 (U.S. 8th Circuit Court of Appeals, August 07, 2008)
In a bankruptcy case, rulings against debtor and denial of discharge are affirmed in part and reversed in part where: 1) the bankruptcy court clearly erred in finding that debtor converted nonexempt property into his homestead with the intent to hinder, delay, or defraud a creditor; 2) it erred similarly in finding debtor transferred nonexempt funds into a Roth IRA with such intent; 3) the resultant denial of discharge required reversal; and 4) two 26 U.S.C. section 529 tuition savings accounts opened for the benefit of his children were nonexempt property of his bankruptcy estate. Read more...

Money in bank accounts.  ARS 33-1126(a) protects up to $150 (for each debtor) in one bank account on the day of filing the bankruptcy case.  If the debtor has issued checks, but the funds have not yet been physically paid out of their bank account prior to the filing of the bankruptcy – these funds are property of the estate and the Trustee will demand surrender of the funds.  The Debtor must reimburse the Trustee for the funds that were in the account on the date of filing, minus their exemption of $150.00.  In re Sawyer, Judge Curley 3/06 (9^th Circuit).

Why aren't wages protected once deposited into a bank account?  Ryan v. Smith, 184 Ariz. 181 (App.1995), 907 P.2d 1384,  "In summary, the earnings protection of §§ 33-1131 and 12-1598.10 does not extend to monies disbursed to the debtor's bank account. We acknowledge that the earnings exemption is thus diluted, at least for debtors who deposit their earnings in bank accounts. But as we have said on other occasions, "An upholding is not an endorsement." McPeak v. Industrial Comm'n, 154 Ariz. 232, 235, 741 P.2d 699, 702 (App. 1987). Those who believe that the earnings exemption should endure beyond disbursement to the employee must direct their remedial efforts to the legislature, not the courts. The trial court correctly granted Frazer judgment on its writ of garnishment."

HOMESTEAD POST BARF:
In re Smith __ B.R __ (9th Cir. BAP 2006)  HELD: FAILURE TO REINVEST HOMESTEAD PROCEEDS LEAVES FUNDS UN-EXEMPT
Exemptions are generally determined as of the petition date. However, where an applicable state law requires compliance with a pre-condition to maintain exempt status. The debtors' failure to reinvest homestead proceeds within the State law statutory time frame (which expired postpetition) extinguished the exemption even though no timely exemption exemption was filed. The funds thus became subject to turnover.

In re Virissimo, 332 B.R. 201 (Bkrtcy.Nev. 2006) LINDA B. RIEGLE, Bankruptcy Judge. HOMESTEAD CAP APPLIES IN ALL STATES (IN THIS CASE NEVADA) § 522(p)

11 U.S.C. § 522(p) is applicable even though Nevada does not allow the choice of federal exemptions. Because the debtors acquired their homes within the 1215 days before the filing they are limited to the $125,000 homestead set forth in that § notwithstanding the fact that the Nevada homestead is higher.

In re Greene 346 B.R. 835 (Bkrtcy.D.Nev. 2006) HOMESTEAD "EXEMPTION" - NOT HOMESTEAD "PROPERTY" - MUST BE ACQUIRED MORE THAN 1,215 DAYS TO AVOID CAP ON EXEMPTION  § 522(p)1)  Debtor purchased residence before 1,215 days prior to filing the bankruptcy, but did not acquire a "homestead exemption" under state law until he filed a declaration of homestead, which was filed within 1,215 days; the court observed that the language of § 522(p)(1) provides that " ... a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215 day period ..." The court appears to have interpreted this to mean lean interest, as opposed to equity, in the property. "The homestead interest is not to be equated with the underlying property." The cited cited for support holdings in In re Brent 68 B.R. 893, 895 (Bkrtcy.D.Vt. 1987) and In re Charles, 25 B.R. 331 (9th Cir. BAP 1982).

In re Landahl, __ B.R. __, 2006 WL 506034 (Bankr. M.D. Fla. 3/2/06) HELD, HOMESTEAD CAP APPLIES IN ALL STATES  Another Florida bankruptcy judge, this time in Tampa, has given broad application to the new BAPCPA provision capping the exemption for homesteads acquired less than 1,215 days before bankruptcy. Judge May joined several other judges who have held that the BAPCPA amendment limiting the homestead exemption to $125,000 applies in all states and not only those which give their residents a choice between the federal and state exemption schemes.

In re Virissimo and In re Heisel, (BK Ct District of NV) 10/31/05   - 11 U.S.C. § 522(p) is applicable even though Nevada does not allow the choice of federal exemptions. Because the debtors acquired their homes within the 1215 days before the filing they are limited to the $125,000 homestead set forth in that § notwithstanding the fact that the Nevada homestead is higher.

In re McNabb (D.Az 6/23/05 - J. Haines) re: homestead exemption - AZ is an opt out state, therefore $125,000 cap provided in Section 522(p) does not apply.

In re Summers, 344 B.R. 108 (Bkrtcy.D.Ariz. 2006)  CAP ON HOMESTEAD EXEMPTION IMPOSED BY BAPCPA APPLIES TO OPT-OUT STATES  TOTAL OF CAP ON HOMESTEAD EXEMPTION PLUS "SAFE HARBOR" EQUITY CANNOT EXCEED THE TOTAL HOMESTEAD EXEMPTION ALLOWED UNDER ARIZONA LAW  Where debtors acquired home within 1,215 days of filing the petition, but some of the proceeds for purchase came from sale of previous homestead acquired before 1,215 days, debtors argued that the "safe harbor" provision of § 522(p)(2)(B) provided that the $125,000 cap does not apply any of the equity in their home.  The court disagreed, saying the Code puts a cap of $125,000 in equity on the home purchased within 1,215 days, including the equity which came from the sale of a home purchased beyond the 1,215-day period, but the combined exemption could not exceed the $150,000 homestead exemption provided under Arizona law. Distinguished result in Wayrynen due to unlimited Florida homestead exemption.

In re Sainlar, 344 B.R. 669 (Bkrtcy.M.D.Fla. 2006)  HELD: BAPCPA CAP ON HOME EQUITY DOES NOT APPLY TO EQUITY ACQUIRED BY NATURAL INCREASE DUE TO MARKET   § 522(d), 522(p)

In a case in which the residence was purchased more than 1,215 days prior to filing bankruptcy, and accordingly, the $125,000 cap on equity purchased within 1,215 days did not apply, as prescribed under BAPCPA [Code section 522(p)], the court held that the cap did not apply to substantial equity arising within 1,215 days due to appreciation not caused by the debtor's “purchased” or “acquired” equity during that time period.

[ed. note: in this case The National Association of Consumer Bankruptcy Attorneys (NACBA) filed an amicus brief in support of the debtor's position]

In re Laconte, 342 B.R. 809 (Bkrtcy.D.Mont. 2005) (Dec. 8).  HELD: UNDER BAPCPA DEBTOR'S CONVERSION OF NON-EXEMPT PROPERTY TO OSTENSIBLY EXEMPT HOMESTEAD EQUITY WAS FRAUDULENT.

The debtor filed bankrupcy on April 21, 2005 . . . just one day after the effective date of that portion of BAPCPA dealing with homestead exemptions.

Acting pursuant to a bankruptcy attorney's advice, debtor then sold several non-exempt motor vehicles and an interest in a non-exempt farm and used the cash proceeds to pay down some of the debt on the home, thus increasing the amount of equity claimed exempt.

The court held " ... Debtors' sale of nonexempt assets and application of the proceeds to the principal balance of their home mortgage was a violation of 11 U.S.C. § 522(o).

Section 522(o) provides that the homestead exemption ". . . shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt ..."

The court discussed the meaning of the phrase "hinder, delay, or defraud" within the context of § 522(o).

HOMESTEAD IN A MOTOR HOME?
In re Irwin, 293 B.R. 28 (Bkrtcy.D. Ariz. 2003) – a judge Haines decision – held that the term “mobile home” as used in the statute is broad enough to include a motor home in which the debtors actually reside.


WAGES:
In re PALIDORA, No. 2-03-15494-PHX-RJH. 5/24/04, Amded 6/7/04, RJ. HAINES, Bankruptcy Judge.  The Court must here determine whether the cash derived from wages paid prepetition retains the status of a wage exemption, and whether cash derived from child support paid to the debtor prepetition is property of the estate. The Court concludes that the Arizona exemption for wages does not apply once they are paid, but that Arizona statutes and case law deem child support payments to be for the benefit of the child and therefore not property of the parent debtor's estate, and in any event are exempt, even after receipt and deposit.

RETIREMENT and ANNUITY ACCOUNTS:

In Re: Krebs, No. 06-2959 (U.S. 3rd Circuit Court of Appeals, May 19, 2008)
In an appeal addressing whether a debtor's right to receive payment from an individual retirement account (IRA) may be exempt from the bankruptcy estate under 11 U.S.C. section 522(d)(10)(E), even though the debtor has not yet reached retirement age, the circuit court rules that an intervening Supreme Court decision implicitly overrules prior precedent, and thus the debtor's right to receive payments from her IRA may be exempt from the bankruptcy estate under section 522(d)(10)(E). Read more...

IN RE PAYNE (9th Cir. BAP 2005)  ANNUITY MAY BE EXEMPT AS LIFE INSURANCE -
Single-premium annuity may qualify for bankruptcy exemption as life insurance under California state law only if primary purpose is insurance and not investment. (Note- this is not an Arizona case.)

Patterson vs. Shumate, 504 U.S. 753 (1992), the Supreme Court was presented with the question whether the debtor’s interest in an employer pension plan that contained the anti-alienation provision required by Title I of the Employee Retirement Income Security Act of 1974 (ERISA)  was included or excluded from the bankruptcy estate under section 541.  The Court held that the term “applicable nonbankruptcy law” in section 541(c)(2) was not limited to state law (and thus included ERISA and other federal law) and that the anti-alienation provision required for qualification under Title I of ERISA was enforceable under applicable nonbankruptcy law.  The Court concluded that under section 541(c)(2) the debtor’s interest in the pension plan was excluded from the bankruptcy estate. 504 U.S. at 760.

ROUSEY ET UX. v. JACOWAY, (8^th Cir CT APP) No. 03­1407. April 4, 2005. Cite as: 544 U. S. ____ (2005)  HELD: The Rouseys can exempt IRA assets from the bankruptcy estate because the IRAs fulfill both of the §522(d)(10)(E) requirements at issue here―they confer a right to receive payment on account of age and they are similar plans or contracts to those enumerated in §522(d)(10)(E). Pp. 4­14. (a) The Court reaffirms its suggestion in Patterson v. Shumate, 504 U. S. 753, 762­763, that IRAs like the Rouseys’ can be exempted from the bankruptcy estate pursuant to §522(d)(10)(E). Pp. 4­5. (b) The Rouseys’ IRAs provide a right to payment “on account of . . . age” within §522(d)(10)(E)’s meaning. The quoted phrase requires that the right to receive payment be “because of” age. Bank of America Nat. Trust and Sav. Assn. v. 203 North LaSalle Street Partnership, 526 U. S. 434, 450­451. This meaning comports with the common, dictionary understanding of “on account of,” and §522(d)(10)(E)’s con-text does not suggest another meaning. The statutes governing IRAs persuade the Court that Jacoway is mistaken in arguing that there is no causal connection between that right and age or any other factor because the Rouseys’ IRAs provide a right to payment on demand. Their right to receive payment of the entire balance is not in dispute. Because their accounts qualify as IRAs under 26 U. S. C. §408(a), they have a nonforfeitable right to the balance held in those accounts, §408(a)(4). That right is restricted by a 10 percent tax penalty on any withdrawal made before age 59½, §72(t). Contrary to Jacoway’s contention, this 10 percent penalty is substantial. It applies proportion-ally to any amounts withdrawn and prevents access to the 10 percent that the Rouseys would forfeit should they withdraw early. It therefore effectively prevents access to the entire balance in their IRAs and limits their right to “payment” of the balance. And because this condition is removed when the accountholder turns age 59½, the Rouseys’ right to the balance of their IRAs is a right to payment “on account of” age. Pp. 5­8.

(c) The Rouseys’ IRAs are “similar plan[s] or contract[s]” to the “stock bonus, pension, profit sharing, [or] annuity . . . plan[s]” listed in §522(d)(10)(E). To be “similar,” an IRA must be like, though not identical to, the listed plans or contracts, and consequently must share characteristics common to them. Because the Bankruptcy Code does not define the listed plans, the Court looks to their ordinary meaning. E.g., United States v. LaBonte, 520 U. S. 751, 757. Dictionary definitions reveal that, although the listed plans are dissimilar to each other in some respects, their common feature is that they provide income that substitutes for wages earned as salary or hourly compensation. That the income the Rouseys will derive from their IRAs is likewise income that substitutes for wages lost upon retirement is demonstrated by the facts that (1) regulations require distribution to begin no later than the calendar year after the year the accountholder turns 70½; (2) taxation of IRA money is deferred until the year in which it is distributed; (3) withdrawals before age 59½ are subject to the 10 percent penalty; and (4) failure to take the requisite minimum distributions results in a 50 percent tax penalty on funds improperly remaining in the account. The Court rejects Jacoway’s argument that IRAs cannot be similar plans or contracts because the Rouseys have complete access to them. This argument is premised on her view that the 10 percent penalty is modest, a premise with which the Court does not agree. The Court also rejects Jacoway’s contention that the availability of IRA withdrawals exempt from the early withdrawal penalty renders the Rouseys’ IRAs more like savings accounts. Sections 522(d)(10)(E)(i) through (iii)―which preclude the debtor from using the §522(d)(10)(E) exemption if an insider established his plan or contract; the right to receive payment is on account of age or length of service; and the plan does not qualify under specified Internal Revenue Code sections, including the section governing IRAs―not only suggest generally that the Rouseys’ IRAs are exempt, but also support the Court’s conclusion that they are “similar plan[s] or contract[s]” under §522(d)(10)(E).

KAELIN v. BASSETT (10/21/02 - No. 02-1119) (8^th Cir) Bankruptcy court erred in denying debtor leave to amend his exemptions as the court's findings that debtor was acting in bad faith, and that amendment would prejudice the creditors, were not supported by the record.  http://caselaw.lp.findlaw.com/data2/circs/8th/021119p.pdf

IRA: DUDLEY v. ANDERSON, No 99-55756 (9th Cir. May 23, 2001) Under California Code of Civil Procedure 704.115(a)(3), an Individual Retirement Account may be exempt from a bankruptcy estate even if it is used primarily for retirement purposes rather than solely for retirement purposes. http://caselaw.lp.findlaw.com/data2/circs/9th/9955756p.pdf

LITTLE v. REAVES, No. 00-57110 (9th Cir. April 08, 2002) Petitioner who sought and was denied exemption for her vehicle from enforcement of a secured debt could still pursue special vehicle exemptions when later filing a bankruptcy petition.

NELSON v. RAMETTE (03/21/02 - No. 01-6072MN) (8th Cir Ct Appeals)  Debtor's undistributed interest in his former spouse's ERISA-qualified retirement plan, obtained pursuant to a qualified domestic relations order, is not property of his Chapter 7 bankruptcy estate.  http://caselaw.lp.findlaw.com/data2/circs/8th/016072p.pdf

Hebbring v. U.S. Trustee (09/11/06 - No. 04-16539) (9th Cir) The Bankruptcy Code does not, per se, disallow voluntary contributions to a retirement plan as a reasonably necessary expense in calculating a debtor's disposable income, but rather requires courts to examine the totality of the debtor’s circumstances on a case-by-case basis to determine whether retirement contributions are a reasonably necessary expense for that debtor.
http://caselaw.lp.findlaw.com/data2/circs/9th/0416539p.pdf

TAX REFUNDS/OFFSETS:

Nichols v. Birdsell, No. 05-15554  U.S. 9th Circuit Court of Appeals, May 09, 2007
Debtors' pre-bankruptcy application of their right to tax refunds to post-bankruptcy tax obligations constitutes an asset that must be turned over to the bankruptcy trustee pursuant to the Bankruptcy Code, 11 U.S.C. section 542.

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