Kip M. Kaler, the Chapter 7 Trustee, appeals from the decision of the Bankruptcy Appellate Panel (BAP) reversing the bankruptcy court’s judgment that the proceeds of personal property sold with a homestead are not proceeds of the homestead.
Under the Bankruptcy Code, a debtor may exempt property from the bankruptcy estate as allowed by state law. The Bankruptcy Code allows maximizing exemptions, particularly the homestead exemption. “It is well established . . . that a debtor’s conversion of non-exempt property to exempt property on the eve of bankruptcy for the express purpose of placing that property beyond the reach of
creditors, without more, will not deprive the debtor of the exemption to which he otherwise would be entitled.”
The BAP committed two errors. First, the BAP required only “sufficient indicia” of an intent to convert non-exempt personal property into exempt homestead property. As a matter of law, there must not only be an intent to convert non-exempt assets, but also an actual conversion. Second, in reversing the bankruptcy court, the BAP said “we find” an intent by Danduran to convert non-exempt property into exempt property. Findings of fact are the sole province of the bankruptcy court.
In this case, the Trustee objected and produced evidence indicating that the account contained the proceeds of real estate and personal property. The evidence showed a sale for $225,000 of which $7,700 was for personal property and $197,300 for a homestead. From the common pool of money, $140,860.38 was used to pay off the mortgage, with the remainder deposited into the savings account. On this record, the Trustee provided no evidence that the proceeds of the sale of the house and personal property were ever segregated or that only the proceeds of real property (and none of the proceeds of personal property) were used to pay off the mortgage. The Trustee cannot meet his burden of proving that Danduran’s savings account contained the proceeds of non-exempt personal property.
The Court found that the BAP erred in reversing the bankruptcy court’s judgment that proceeds of personal property sold with a homestead are not proceeds of the homestead.
Reversed and remanded.