KOZINSKI, Circuit Judge.
More than 40 states, including California, have statutes that place a debtor's homestead or a portion thereof beyond the reach of creditors. This protection carries over into bankruptcy to shelter the debtor from forced sale of his homestead by a bankruptcy trustee unless certain conditions are satisfied. In this case we explore the conditions to be met before a bankruptcy trustee may sell a debtor's homestead in accordance with California's homestead exemption statute and the United States Bankruptcy Code.
On November 21, 1988, Appellants Irwin and Janice Hyman filed a voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code. Appellee Gary Plotkin was appointed as trustee to liquidate the Hymans' estate pursuant to 11 U.S.C. § 704.
The only real property the Hymans owned was their home, which they valued at $415,000 and which was encumbered by $347,611 in consensual liens. On their bankruptcy schedule of exempt property, the Hymans claimed their "homestead" as exempt under Cal.Civ.Proc.Code § 704.720, listing the value of the exemption as $45,000.
Unpleasantly surprised by the trustee's actions, the Hymans filed for declaratory judgment, claiming their home was not an asset of the estate because of its exempt status, and thus was beyond the reach of the trustee. In the alternative, they claimed all post-petition appreciation in the value of their home inured to them, not to the estate; they were therefore entitled, in their eyes, to the $45,000 exemption under Cal.Civ.Proc.Code § 704.730 plus the increase in the value of their home from the bankruptcy filing date to the sale date. The bankruptcy court, Bankruptcy Judge Geraldine Mund presiding, granted summary judgment in favor of the trustee, and a divided Bankruptcy Appellate Panel affirmed. 123 B.R. 342 (9th Cir. BAP 1991).
This case turns largely on the proper interpretation of California's homestead exemption statute. That statute defines "homestead" as a judgment debtor's principal dwelling place, Cal.Civ.Proc.Code § 704.710(c), and "homestead exemption" as a fixed dollar amount generated from the sale of the homestead. Id., § 704.730. For the Hymans that amount is $45,000. Id., § 704.730(a)(2).
Of course, the Hymans were not "judgment debtors" under California law, but bankruptcy petitioners under federal law. Nevertheless, section 522(b)(2)(A) of the Bankruptcy Code excludes from a debtor's bankruptcy estate "any property that is exempt under ... State or local law that is applicable ... at the place in which the debtor's domicile has been located...." Because the Hymans had been domiciled in California "for the 180 days immediately preceding the date of the filing of [their] petition," id., section 522 entitled them to exempt from their estate any property qualifying under California's homestead exemption statute.
A. The Hymans first argue that by listing "homestead" instead of "homestead exemption" on their schedule of exempt property, they were claiming as exempt property their entire homestead, not just $45,000.
However, "[w]e have reviewed Debtor's bankruptcy petition, `Schedule B-4 — Property claimed as exempt,' and find this assertion to be erroneous." In re Reed, 940 F.2d 1317, 1321 n. 3 (9th Cir. 1991).
B. Next, the Hymans argue that even if they were limited to a $45,000
The flaw in the Hymans' argument is that it is not supported by the statutory language upon which they rely. Section 704.800 permits the forced sale of a homestead if its sale price "exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property." There is no statutory requirement that the sale price also account for selling costs,
Independent of the trustee's obligation under section 704.800 is his obligation under 11 U.S.C. § 704(1) to act in "the best interest of parties in interest" in reducing estate property to cash. It's doubtful this obligation would be satisfied if the trustee sold the Hymans' home for less than the homestead exemption, encumbrances, selling costs and trustee's own fees. However, nothing in 11 U.S.C. § 704 or elsewhere in the Bankruptcy Code requires that the trustee demonstrate in advance of attempting a sale that the market price will exceed all costs and encumbrances. The sale of encumbered property is a relatively complex financial transaction and the trustee cannot be certain of what he will reap until he has taken bids on the property. Some of the variables involved are known in advance, such as the amounts of the homestead exemption and encumbrances. Other variables remain unknown until the bids are in, such as the sale price
We note initially that this argument is somewhat premature. The question squarely before us is not what is the exact amount to which the Hymans will be entitled upon final distribution of the proceeds of sale, but whether a sale will be held at all. On that issue alone, the bar against forced sale embedded in California Code of Civil Procedure § 704.800 speaks only in terms of the amount of the exemption itself, not any appreciation or depreciation due to the passage of time. Thus, even if it turns out that the Hymans would be entitled to some amount in excess of the $45,000 at the time of the final accounting, only the $45,000 itself may be considered in determining whether a sale may be held under section 704.800.
In any event, the Hymans' claim for appreciation is without merit. The California statute gives the Hymans a $45,000 exemption as of the time of sale, not a $45,000 equity interest in the property. In the normal situation where section 704.800 is called into play — a sale of property to satisfy a judgment lien — the concept of an interest that fluctuates in value makes no sense because all the relevant events occur on the date of sale. Only in the bankruptcy context, where an appreciable period of time usually passes between filing of the petition and sale of the property, can the property rise or fall in value. Yet, we see no basis for treating a sale by a trustee in bankruptcy any different from a sale by a judgment lienholder. The debtor's right to use the exemption comes into play not upon the filing of the petition, but only if and when the trustee attempts to sell the property. At that point, and not before, the debtor first faces the possibility of being dispossessed of his home, and the grim prospect of having to use the exemption money to find alternative housing.
Were we to accept the Hymans' argument that they're entitled to post-filing appreciation, we would also have to hold that a debtor is subject to post-filing depreciation, which would give debtors in falling property markets less than the $45,000 guaranteed them by state law. Nothing in the bankruptcy law compels (or even suggests) such a drastic interference with the operation of the state homestead exemption statute. In fact, our caselaw strongly suggests the opposite result. See Reed, 940 F.2d at 1323 (stating that post-filing "appreciation enures to the bankruptcy estate, not the debtor"). The policies of both federal and state law (as well as the interest in simplifying bankruptcy estate administration) are best served if the debtor is guaranteed the full exemption amount on the date of sale, regardless of the vicissitudes of the real estate market or the timing of the sale.
Type of Specific Statute creating Value Claimed Property the exemption Exempt Homestead C.C.P. 704.720 45,000.00