In re Gomez

646 B.R. 523

IN RE: Vivian GOMEZ, Adam Gomez, Debtors.

Bankruptcy Case No. 22-11074 TBM

United States Bankruptcy Court, D. Colorado.

Signed November 17, 2022

Jonathan Dickey, Kutner Brinen Dickey Riley, P.C., Denver, CO, for Trustee Joli A. Lofstedt.

Chris D. Hefty, Loveland, CO, for Debtors.

ORDER SUSTAINING CHAPTER 7 TRUSTEE'S OBJECTION TO DEBTORS’ CLAIM OF EXEMPTION (HOMESTEAD AMOUNT)

Thomas B. McNamara, United States Bankruptcy Judge

I. Introduction .

The Debtors, Vivian Gomez and Adam Gomez (together, the "Debtors"), filed their Chapter 7 bankruptcy petition on March 31, 2022 (the "Petition Date"). In their bankruptcy Schedules, the Debtors listed their home located at 798 Depot Drive, Milliken, Colorado 80543-3210 (the "Property") as their main asset. When they filed for bankruptcy protection, the amount of the applicable homestead exemption under COLO. REV. STAT . § 38-41-201(1)(a) was $75,000. Based upon the then-effective Colorado homestead law as well as the Debtors’ valuation of their home and the liens against it, the Debtors asserted a homestead exemption of $0. A week later, on April 7, 2022, Colorado Governor Jared S. Polis signed into law Senate Bill 22-086 ("SB 22-086"). SB 22-086 made numerous exemption law changes quite favorable for debtors. Among other things, the new law increased the standard homestead exemption amount from $75,000 to $250,000.

Now, through an amended claim of homestead exemption, the Debtors want to use the new and higher homestead exemption in their bankruptcy case. They contend that SB 22-086 (which had not been enacted into law as of the Petition Date) somehow governs retroactively. The Chapter 7 Trustee, Joli A. Lofstedt (the "Chapter 7 Trustee"), argues otherwise and objected to the Debtors’ revised claim of homestead exemption. According to the Chapter 7 Trustee, the Colorado exemption laws in effect on the Petition Date govern.

As a general matter, new laws apply only prospectively. That foundational principle is embedded in the Bankruptcy Code,¹ federal law, the Colorado Constitution, Colorado statutes, and case law. There is a potential exception: if the General Assembly endorses retroactive application of a new law in the new law. That did not happen in SB 22-086. Consequently, SB 22-086 applies only prospectively and cannot be used by the Debtors to claim a new and higher homestead exemption than existed as of the Petition Date.

II. Procedural Background.

On the Petition Date (March 31, 2022), the Debtors filed their Schedules. On their Schedule A/B² , the Debtors listed — as their largest asset — their ownership of the Property. The Debtors asserted that the Property was worth $343,325.³ On their Schedule D⁴ , the Debtors disclosed that the Property was subject to a mortgage in favor of U.S. Bank Home Mortgage (the "Bank") in the amount of $375,354. Thus, the Debtors took the position that they had no equity in the Property and the Bank was under-secured to the tune of $32,029.⁵ Given that the debt owed to the Bank exceeded the value of the Property, on their Schedule C⁶ the Debtors asserted a homestead exemption of $0 under COLO. REV. STAT . § 38-41-201(1)(a). In other words, the Debtors effectively asserted no homestead exemption.

About four months later, the Debtors changed their tune about the value of the Property, the nature of the Bank's lien, and the Debtors’ exemptions. On August 3, 2022, the Debtors filed an Amended Schedule A/B⁷ , an Amended Schedule C⁸ , and an amended Schedule D.⁹ This time, the Debtors asserted the value of the Property to be $495,000 — a dramatic increase of $151,675 from the original Schedule A/B.¹⁰ Based on the new value, the Debtors contended that the Bank was over-secured.¹¹ And, finally, the Debtors upped their asserted homestead exemption in the Property from $0 to $170,350.¹² Again, they asserted that COLO. REV. STAT . §§ 38-41-201(1)(a) justified their homestead exemption.

Shortly thereafter, the Chapter 7 Trustee filed her "Objection to Debtors’ Claim of Homestead Exemption."¹³ In the Exemption Objection, the Chapter 7 Trustee objected that the Debtors were improperly attempting to utilize a new homestead exemption law that was enacted after the Petition Date. In opposition to the Exemption Objection, the Debtors submitted their "Response to Trustee's Objection to Debtors’ Claim of Homestead Exemption and Request for Hearing."¹⁴

The Court convened a non-evidentiary hearing (the "Hearing") on the Exemption Objection and Response. In advance of the Hearing, the parties filed a "Joint Status Report"¹⁵ in which they presented the Court with a number of stipulated facts (the "Stipulated Facts") to be used for adjudicating the Exemption Objection and Response. At the Hearing, the parties confirmed the Stipulated Facts and asked the Court to decide the Exemption Objection and Response based on the Stipulated Facts and without the need for an evidentiary hearing. Following the Hearing, the Debtors and the Chapter 7 Trustee submitted supplemental legal authority in support of their respective positions.¹⁶ The dispute is now ripe for determination based upon the Stipulated Facts and applicable law.

III. Jurisdiction and Venue.

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(a), (b) and (e). This dispute is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate) and (b)(2)(B) (allowance or disallowance of exemptions from property of the estate). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

IV. Stipulated Facts .

The Debtors and the Chapter 7 Trustee submitted the following Stipulated Facts and "agreed that there are no disputed facts which would require the Court hearing evidence at a hearing."¹⁷

1. The Debtors filed their Chapter 7 case on March 31, 2022 (the "Petition Date").

2. On the Petition Date, the Debtors owned real property with an address of 798 Depot Drive; Milliken, CO 80543 (the "Property").

3. The Debtors originally scheduled the value of the Property as $343,325 and subject to liens of $375,354. As a result, the Debtors claim[ed] a homestead exemption of $0 under C.R.S. §§ 38-41-201(1)(a) ; 38-41-201.6 and 38-41-202 because the scheduled value exceeded the amount of the lien.

4. The Debtors claimed a homestead exemption in the Property under C.R.S. § 38-41-201(1)(a), meaning neither of the Debtors claim to be "elderly" or "disabled" as defined by that statutory section.

5. On April 7, 2022 – seven days after the Petition Date – SB 22-086 was signed into law by Governor Polis. As relevant to this proceeding, SB 22-086 increased the homestead exemption under C.R.S. § 38-41-201(1)(a) from $75,000.00 to $250,000.00.

6. On August 3, 2022, Debtors amended their Schedules A/B and C, increasing the scheduled value of the Property to $495,000.00 and increasing the claimed homestead exemption under §§ 38-41-201(1)(a) ; 38-41-201.6 and 38-41-202 to $170,350.00 based on SB 22-086 (the "Amended Claim of Exemption").

V. Applicable Law.

The core issue in this dispute is whether the Debtors are entitled to claim a homestead exemption under the new version of COLO. REV. STAT . § 38-41-201(1)(a) passed after they filed their Petition. The dispute — primarily legal in nature — implicates both bankruptcy law and Colorado law.

A. Bankruptcy Law.

The commencement of a bankruptcy case creates an estate that includes "all legal or equitable interests of the debtor in property." 11 U.S.C. § 541(a). However, a debtor may exempt certain property from the bankruptcy estate. 11 U.S.C. § 522(b) ; see also Kulp v. Zeman (In re Kulp) , 949 F.2d 1106, 1107 (10th Cir. 1991). Section 522 contains a list of approved federal exemptions but also permits States the authority to "opt-out" from federal exemptions and substitute State exemptions instead. Colorado elected to "opt-out" from the federal exemption scheme so Colorado residents may only claim exemptions under Colorado statutes. COLO. REV. STAT . § 13–54–107 (federal exemptions are "denied to residents of this state."). Thus, Colorado law governs exemptions claimed by Colorado residents such as the Debtors. 11 U.S.C. § 522 ; Law v. Siegel , 571 U.S. 415, 425, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014) ("when a debtor claims a state-created exemption, the exemption's scope is determined by state law") (emphasis in original); Kulp , 949 F.2d at 1107 (interpreting Colorado exemption statutes); In re Romero , 533 B.R. 807, 810-11 (Bankr. D. Colo. 2015), aff'd , 579 B.R. 551, 557 (D. Colo. 2016).

Under the Bankruptcy Code as applied in opt-out-States, exemptions are determined by the State law "that is applicable on the date of the filing of the petition to the place in which the debtor's domicile has been located for the 730 days immediately preceding the date of the filing of the petition ...." 11 U.S.C. § 522(b)(3)(A) ; see also Myers v. Matley , 318 U.S. 622, 628, 63 S.Ct. 780, 87 L.Ed. 1043 (1943) (pre-dating Bankruptcy Code but providing: "the bankrupt's right to a homestead exemption becomes fixed at the date of filing of the petition in bankruptcy ...."); White v. Stump , 266 U.S. 310, 312, 45 S.Ct. 103, 69 L.Ed. 301 (1924) (pre-dating Bankruptcy Code but holding: "the state laws existing when the petition is filed [are] the measure of the right to exemptions."); Marcus v. Zeman (In re Marcus) , 1 F.3d 1050, 1051 (10th Cir. 1993) ("We hold that the law in effect on the date of [bankruptcy] filing controls what exemptions will be available to a debtor ...."); U.S. v. Kaminski , 2009 WL 10681960, at *3 (D. Colo. Oct. 23, 2009). This legal principle, embedded in the Bankruptcy Code is sometimes referred to colloquially as the "snapshot" rule. Rockwell v. Hull (In re Rockwell) , 968 F.3d 12, 18 (1st Cir. 2020) (as applied to bankruptcy exemptions, the " ‘snapshot’ rule [means that] the debtor's financial situation is frozen in time [as of the petition date], as if someone had taken a snapshot of it.").

B. State Law .

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