FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: NIKALOUS G.
GEBHART,
Debtor,
No. 07-16769
NIKALOUS G. GEBHART, D.C. No.
Appellant, CV-07-0193 ROS
v.
MAUREEN GAUGHAN,
Trustee-Appellee.
Appeal from the United States District Court
for the District of Arizona
Roslyn O. Silver, District Judge, Presiding
In the Matter of: STEVEN JAY
CHAPPELL; JULIE LYNN CHAPPELL,
Debtors,
No. 07-35704
STEVEN JAY CHAPPELL; JULIE LYNN BAP No.
CHAPPELL, WW 06-1435
Appellants, RKMo
v. OPINION
MICHAEL P. KLEIN, Chapter 7
Trustee,
Appellee.
14063
14064 In the Matter of GEBHART
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Riblet, Klein, and Montali, Bankruptcy Judges, Presiding
Argued and Submitted December 12, 2008
San Francisco, California
Submission Vacated August 27, 2009
Resubmitted July 30, 2010
Filed September 14, 2010
Before: A. Wallace Tashima and Marsha S. Berzon, Circuit
Judges, and Robert J. Timlin,* District Judge.
Opinion by Judge Tashima
*The Honorable Robert J. Timlin, United States District Judge for the
Central District of California, sitting by designation.
14066 In the Matter of GEBHART
COUNSEL
Harold E. Campbell, Mesa, Arizona, for appellant Gebhart.
Steven J. Brown, Phoenix, Arizona, for appellee Gaughan.
Marc S. Stern, Seattle, Washington, for appellants Chappells.
James W. Shafer, Seattle, Washington, for appellee Klein.
Tara Twomey, San Jose, California, for amicus curiae
National Association of Consumer Bankruptcy Attorneys.
In the Matter of GEBHART 14067
OPINION
TASHIMA, Circuit Judge:
These consolidated appeals present the question of how to
construe the homestead exemption in bankruptcy. In both
cases, the debtors filed for Chapter 7 bankruptcy at a time
when the value of the equity in their homes was less than the
amount they were eligible to claim under the state or federal
homestead exemption. There was no value in the homestead
properties that could be claimed by the bankruptcy estate, and
the debtors therefore anticipated that they would be able to
retain ownership of their homes, subject to the terms of their
mortgages, after the bankruptcy closed. The value of the
homes subsequently increased so that the debtors had equity
in excess of the homestead exemptions. Our question is
whether the bankruptcy Trustees may force a sale of the
homestead properties in order to recover the excess equity, or
whether instead the debtors should be allowed to retain any
postpetition increase in the fair market value of their homes.
We have jurisdiction over these appeals pursuant to 28
U.S.C. §§ 158(d)(1), 1291.
BACKGROUND
The Gebhart Bankruptcy
On August 8, 2003, Nikalous Gebhart (“Gebhart”), a resi-
dent of Arizona, filed for Chapter 7 bankruptcy protection. As
part of his bankruptcy petition, he claimed an exemption in
the amount of $89,703 for the house he owned in Phoenix.
According to the petition, the market value of the property at
the time of filing was $210,000, and it was encumbered by
mortgages in the amount of $120,297. The $89,703 figure
represents the difference between the value of the homestead
and the mortgages with which it was encumbered. Gebhart
claimed the exemption pursuant to ARIZ. REV. STAT. § 33-
14068 In the Matter of GEBHART
1101(A), which at the time of the bankruptcy filing provided
that an Arizona resident “may hold as a homestead exempt
from attachment, execution and forced sale, not exceeding
one hundred thousand dollars in value . . . [t]he person’s inter-
est in real property in one compact body upon which exists a
dwelling house in which the person resides.”1 The Trustee did
not object to Gebhart’s claim of a homestead exemption in the
property.
Gebhart received his discharge under 11 U.S.C. § 727 on
December 12, 2003. He continued to reside in his house and
even refinanced his mortgage with a lender who apparently
believed Gebhart owned the property free and clear of any
claims by the bankruptcy estate. In fact, however, the bank-
ruptcy case was not closed. On November 10, 2006, the
Trustee asked the bankruptcy court to approve the appoint-
ment of a real estate broker to sell the home for the benefit of
the estate.2 The Trustee believed that the value of the house
had increased substantially since the time of the bankruptcy
filing, and that if it were sold, the estate would recover a great
deal of money, even after paying off the mortgage and the
expenses of the sale and paying Gebhart the value he had
claimed for his homestead exemption. Gebhart responded by
moving that the court order the Trustee to abandon the home-
stead as valueless to the estate, or, in the alternative, that the
court determine that the estate no longer had any interest in
the homestead. Gebhart argued that the value of the home-
stead for the purposes of the bankruptcy case had been locked
1
The statute has since been amended to increase the amount of the
exemption to $150,000. The exemption statute, as is common in these stat-
utes, does not protect against foreclosure by holders of consensual liens
such as mortgages. Id. § 33-1104(D). Arizona has opted out of the federal
system of exemptions pursuant to 11 U.S.C. § 522(b)(2), and thus Gebhart
was eligible to use only the state law system of exemptions.
2
Gebhart states in his brief that the Trustee demanded in October 2006,
prior to applying for the appointment of a real estate broker, that Gebhart
pay the Trustee $115,000 for increased equity in the house. There is no
indication in the record of any such demand.
In the Matter of GEBHART 14069
in at the time of the bankruptcy filing, and that because the
entire value at that time had been covered by mortgages and
the homestead exemption, there was no value left for the
estate to recover.
The bankruptcy court ruled in favor of the Trustee, ordering
the appointment of a real estate broker and denying the
motion for abandonment. Gebhart appealed to the district
court, which affirmed the bankruptcy court’s ruling. This
appeal followed.
The Chappell Bankruptcy
The Chappells’ story is similar to that of Gebhart. Steven
and Julie Chappell filed for Chapter 7 bankruptcy on June 30,
2004. They owned a home in Camano Island, WA, in which
their equity at the time of bankruptcy—$21,511—was less
than the $36,900 they were allowed to claim under the federal
homestead exemption in bankruptcy, 11 U.S.C. § 522(d)(1).3
The Chappells received their discharge under 11 U.S.C.
§ 727 on October 21, 2004. On July 7, 2006, two years after
the bankruptcy petition was filed, the holder of the Chappells’
mortgage moved for relief from the stay in order to foreclose
on the homestead because the Chappells had fallen into
default. The Trustee responded that he believed the fair mar-
ket value of the homestead had increased substantially since
the bankruptcy filing, and asked permission to attempt to sell
the property and keep the excess recovered for the benefit of
the estate. The bankruptcy court ruled that the homestead had
passed entirely out of the estate when the Chappells had
claimed all of their equity in it as exempt and the Trustee
failed to object. The Trustee appealed and the bankruptcy
3
At the time the case was filed, the federal homestead exemption was
$18,450. Because the Chappells filed a joint bankruptcy case, they were
allowed to double the value of the exemption pursuant to 11 U.S.C.
§ 522(m).
14070 In the Matter of GEBHART
appellate panel (the “BAP”) reversed the bankruptcy court’s
decision, holding that the postpetition appreciation in the
homestead belonged to the estate. Klein v. Chappell (In re
Chappell), 373 B.R. 73, 83 (9th Cir. BAP 2007). This appeal
followed.
STANDARD OF REVIEW
When we review a district court’s affirmance of a bank-
ruptcy court’s decision, we apply the same standard as the
district court: the bankruptcy court’s findings of fact are
reviewed for clear error, and conclusions of law are reviewed
de novo. Abele v. Modern Fin. Plans Servs., Inc. (In re
Cohen), 300 F.3d 1097, 1101 (9th Cir. 2002). The same is
true of an appeal from the BAP’s reversal of a bankruptcy
court’s decision. Sigma Micro Corp. v. Healthcentral.com (In
re Healthcentral.com), 504 F.3d 775, 783 (9th Cir. 2007).
ANALYSIS
[1] The primary issue we must decide in these consolidated
appeals is whether the Trustee’s failure to object to the home-
stead exemption claim within the period allowed by statute
resulted in the homestead property being withdrawn from the
bankruptcy estate at that point. The Supreme Court held in
Taylor v. Freeland & Kronz, 503 U.S. 638, 644 (1992), that,
unless the trustee objects to a claimed exemption within the
30-day period allowed under Federal Rule of Bankruptcy Pro-
cedure 4003(b), the property is exempted from the bankruptcy
estate even if the debtor had no good faith basis for the claim
of exemption. The effect of an exemption is that the debtor’s
interest in the property is “withdrawn from the estate (and
hence from the creditors) for the benefit of the debtor.” Owen
v. Owen, 500 U.S. 305, 308 (1991); accord Smith v. Kennedy
(In re Smith), 235 F.3d 472, 478 (9th Cir. 2000) (“It is widely
accepted that property deemed exempt from a debtor’s bank-
ruptcy estate revests in the debtor.”). As the Second Circuit
has stated, “[q]uite simply, property that has been exempted
In the Matter of GEBHART 14071
belongs to the debtor.” Bell v. Bell (In re Bell), 225 F.3d 203,
216 (2d Cir. 2000). This principle is consistent with the text
of the Bankruptcy Code, which defines exempt property as
property that, unlike all the debtor’s other property, does not
belong to the bankruptcy estate. See 11 U.S.C. § 522(b)(1);
see also S. REP. No. 95-989, at 52 (1978), as reprinted in
1978 U.S.C.C.A.N. 5787, 5838 (recognizing that exempt
property “ceases to be property of the estate”).
[2] The homestead exemptions available to the debtors in
both of these cases, however, do not permit the exemption of
entire properties, but rather specific dollar amounts. Under 11
U.S.C. § 522(d)(1), the Chappells were entitled to exempt
“[t]he debtor’s aggregate interest, not to exceed [$36,900] in
value, in real property.” Similarly, the Arizona statute under
which Gebhart claimed his exemption entitles a debtor to a
homestead exemption “not exceeding one hundred thousand
dollars in value.”ARIZ. REV. STAT. § 33-1101. The Supreme
Court recently clarified in Schwab v. Reilly (In re Reilly), 130
S. Ct. 2652 (2010), that exemptions claimed under statutes
like these are limited to the dollar value claimed in the
exemption. Even when a debtor claims an exemption in an
amount that is equal to the full value of the property as stated
in the petition and the trustee fails to object, the asset itself
remains in the estate, at least if its value at the time of filing
is in fact higher than the exemption amount.4 Id. at 2661-62,
2666. Instead, what is removed from the estate is an “interest”
4
We note that Reilly did not address instances in which the full value
of property at the time of filing is in fact equal to or less than the monetary
limit provided for by the relevant bankruptcy exemption. Although the
Court expressed skepticism about the issue, it left open whether such a
claim would entitle a debtor to the property itself as opposed to a payment
equal to the property’s full value. Reilly, 130 S. Ct. at 2668 n.21. As in
Reilly, the facts of these cases do not implicate this scenario, because the
debtors here claimed as exempt only their equity interest in their proper-
ties (the difference between the value of the homesteads and the mort-
gages with which they were encumbered), not the full fair market value
of their properties.
14072 In the Matter of GEBHART
in the property equal to the value of the exemption claimed
at filing. Id. at 2660.5 The implications for the cases at issue
here are clear: the fact that the value of the claimed exemption
plus the amount of the encumbrances on the debtor’s resi-
dence was, in each case, equal to the market value of the resi-
dence at the time of filing the petition did not remove the
entire asset from the estate.
The Supreme Court’s decision in Reilly was based on a
somewhat different situation than is present here. In Reilly,
the debtor underestimated the value of the exempt property at
the time of filing. Id. at 2657-58. In both of the current cases,
by contrast, the debtors accurately valued the equity interests
in their homestead properties at the time of bankruptcy filing,
but the fair market values of the properties increased subse-
quent to filing. This distinction, however, does not alter the
analysis. Under Reilly, an exemption claimed under a dollar-
value exemption statute is limited to the value claimed at fil-
ing. At least when the total fair market value of the property
is in fact greater than the exemption limit at the time of filing,
see note 4, supra, any additional value in the property remains
the property of the estate, regardless of whether the extra
value was present at the time of filing or whether the property
increased in value after filing.
[3] The debtors argue that this conclusion is inconsistent
5
Gebhart relies on Evans v. Young, 661 P.2d 1148 (Ariz. Ct. App.
1983), to argue that the Arizona homestead exemption statute exempts an
entire property and not merely a dollar amount equal to the maximum
amount of the exemption, and that because Arizona is an opt-out state the
Supreme Court’s contrary interpretation of the federal exemption scheme
is irrelevant. Evans, however, was decided based on an earlier version of
the Arizona homestead statute, which exempted “real property”, Evans,
661 P.2d at 1149 n.1, whereas the current version of the statute exempts
an “interest in real property,”ARIZ. REV. STAT. § 33-1101(A) (emphasis
added). By its plain language, the Arizona homestead exemption thus
appears to track the federal exemption in applying only to an interest up
to a given monetary amount.
In the Matter of GEBHART 14073
with the Bankruptcy Code’s scheme for valuing exempt prop-
erty. Under 11 U.S.C. § 522(a)(2), “ ‘value’ [of property
sought to be exempt] means fair market value as of the date
of the filing of the petition or, with respect to property that
becomes property of the estate after such date, as of the date
such property becomes property of the estate.” The debtors
argue that this provision effectively freezes the value of prop-
erty claimed as exempt as of the date of bankruptcy filing.
This argument does not accord, however, with past holdings
of this court, which establish that what is frozen as of the date
of filing the petition is the value of the debtor’s exemption,
not the fair market value of the property claimed as exempt.
See Hyman v. Plotkin (In re Hyman), 967 F. 2d 1316, 1320
n.9 (9th Cir. 1992). A number of our cases have held that,
under the California exemption scheme, the estate is entitled
to postpetition appreciation in the value of property a portion
of which is otherwise exempt. See Alsberg v. Robertson (In re
Alsberg), 68 F.3d 312, 314-15 (9th Cir. 1995); Hyman, 967
F.2d at 1321; Schwaber v. Reed (In re Reed), 940 F.2d 1317,
1323 (9th Cir. 1991); see also Viet Vu v. Kendall (In re Viet
Vu), 245 B.R. 644, 647-48 (9th Cir. BAP 2000).
The fact that the cases cited above dealt with exemptions
claimed under California’s statutory exemption scheme does
not limit their applicability to the cases at bench, where
exemptions were claimed under Arizona and federal statutes.
Reilly has reaffirmed certain of the underlying principles in
these cases and clarified that, with respect to how exempt
property is defined, their reasoning is applicable not just to
California’s exemption scheme, but to all statutes that limit
the value of an exemption to an “interest” in property capped
at a dollar value. Morever, this court’s past position on post-
petition appreciation is based not solely on the California stat-
ute defining exempt property but also on 11 U.S.C.
§ 541(a)(6) (including as property of the estate “[p]roceeds,
product, offspring, rents, or profits of or from property of the
estate . . .”), which is equally applicable to the cases at issue
14074 In the Matter of GEBHART
here. See In re Reed, 940 F.2d at 1323; In re Viet Vu, 245
B.R. at 649.
[4] The debtors argue that the result we reach today will
lead to uncertainty about the status of exempt property and
abuses by trustees. The facts of the Gebhart bankruptcy sug-
gest that some of these concerns are legitimate. Gebhart
remained in his home for five years after filing for bank-
ruptcy, paying his mortgage and believing that his bankruptcy
was finished when he received his discharge. Gebhart may
have been mistaken in this belief, but his misapprehension
was shared by his mortgage lender, which refinanced his
home, apparently unaware of any claims on the property by
the Trustee. A Chapter 7 debtor will not be certain about the
status of a homestead property until the case is closed (some-
thing that may not happen for several years after bankruptcy
filing) or the trustee abandons the property.
Gebhart argues that, even if the homestead is the property
of the bankruptcy estate, the Trustee in his case intentionally
left the case open longer than necessary and should be estop-
ped from proceeding with the sale of the property. We do not
decide whether estoppel might be available as a remedy in a
bankruptcy proceeding, see Cannon v. Hawaii Corp. (In re
Hawaii Corp.), 796 F.2d 1139, 1144 n.3 (9th Cir. 1986),
because, even if it were, Gebhart has not met the requirement
for estoppel to apply. The following four elements are
required in order for estoppel to apply:
(1) The party to be estopped must know the facts; (2)
he must intend that his conduct shall be acted on or
must so act that the party asserting the estoppel has
a right to believe it is so intended; (3) the latter must
be ignorant of the true facts; and (4) he must rely on
the former’s conduct to his injury.
Bob’s Big Boy Family Rests. v. NLRB, 625 F.2d 850, 854 (9th
Cir. 1980). Gebhart has made no showing that the Trustee
In the Matter of GEBHART 14075
intended for Gebhart to act as if he would be able to retain the
homestead property permanently. Nor can Gebhart show, as
required by the second part of the second element, that he had
a right to believe that the Trustee, by her inaction, intended
Gebhart to believe that she had released all rights to the
homestead. The estate does not relinquish property until the
bankruptcy case is closed or the estate abandons the property
under 11 U.S.C. § 554. Moreover, Gebhart was no more igno-
rant of the true facts than was the Trustee.
Furthermore, abandonment of an estate asset is not a rem-
edy for a trustee’s misconduct. A trustee has a duty under 11
U.S.C. § 704(a)(1) to administer the case quickly and expedi-
tiously, and we reach no decision as to whether the Trustee
failed to live up to this duty by leaving the case open for eigh-
teen months without activity. If there were any misconduct by
the Trustee, the duty to police it falls on the U.S. Trustee in
Gebhart’s district, who may suspend or expel a trustee for
failure to perform her duties or comply with the Bankruptcy
Code. See 28 C.F.R. § 58.6(a)(2) - (3). To require the Trustee
to abandon Gebhart’s homestead would punish Gebhart’s
creditors for the Trustee’s misdeeds.6
CONCLUSION
For the reasons set forth above, the judgment of the district
court in Gebhart’s case, No. 07-16769, and of the BAP in the
Chappells’ case, No. 07-35704, are AFFIRMED.
6
A debtor also has an alternative remedy of petitioning under 11 U.S.C.
§ 554(b) for the bankruptcy court to “order the trustee to abandon any
property of the estate that is burdensome to the estate or that is of inconse-
quential value and benefit to the estate.”