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The Bankruptcy StrategistFeaturesBankruptcyCivil ProcedureLitigation

Ninth Circuit Bankruptcy Panel Holds Lack of Timely Objection Bars Objection to Homestead Value Exemption

By Lawrence J. Kotler and Geoffrey A. Heaton
May 01, 2023

In a recently published decision, In re Masingale, 644 B.R. 530 (9th Cir. BAP 2022), the U.S. Bankruptcy Appellate Panel for the U.S. Court of Appeals for the Ninth Circuit (the BAP) held that in the absence of a timely objection, debtors who claimed a homestead exemption of "100% of FMV" in their residence had a valid exemption claim for the full fair market value of the property, including post-petition appreciation. The fact that the claimed exemption far exceeded the applicable statutory limit, or that the Chapter 7 trustee never had an opportunity to object, did not change the outcome as the BAP found that the lack of a timely objection barred any challenge to the exemption.

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Background

In 2015, Mr. and Mrs. Masingale filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Eastern District of Washington. The Masingales owned residential real property in Greenacres, Washington. In their schedules, the debtors listed their home as having a value of $165,430, with a mortgage lien against the property in the amount of $130,724. They also scheduled a homestead exemption in the property under Section 522(d)(1) of the Bankruptcy Code for "100% of FMV." No creditor or interested party objected to this claimed exemption, let alone within 30 days after the conclusion of the Masingales' November 2015 meeting of creditors, as required by the Federal Rules of Bankruptcy Procedure (the bankruptcy rules). Mr. Masingale later passed away in July 2016.

The bankruptcy court confirmed Mrs. Masingale's Chapter 11 plan in August 2017. Over a year later, in November 2018, the bankruptcy court converted the case to Chapter 7. Mrs. Masingale filed a motion to compel the Chapter 7 trustee of her bankruptcy estate to abandon her home, arguing that "100% of FMV," i.e., the entire fair market value of the property, was exempt because no one had objected to the scheduled homestead exemption. The trustee objected to her motion, arguing that the statutory basis for the exemption, Section 522(d)(1), capped the allowed exemption amount at $45,950, with any post-petition appreciation inuring to the benefit of the estate. The state of Washington, a creditor in the case, also objected, raising additional arguments. The trustee, in turn, filed a motion to sell the home, to which Mrs. Masingale objected.

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