Judge Karlin

BAP WO-08-086 In Re Stephens - Document Text


U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
March 9, 2009
Barbara A. Schermerhorn






BAP No. WO-08-086

Bankr. No. 07-11679
Chapter 7


Appeal from the United States Bankruptcy Courtfor the Western District of Oklahoma

Submitted on the briefs:*
Gabriel Rivera, Moore, Oklahoma, for Appellant.

L. Win Holbrook, Trustee, pro se, and Mark Monfort of Holbrook & Toffoli,
Oklahoma City, Oklahoma, for Appellee.
Before BROWN, THURMAN, and KARLIN, Bankruptcy Judges.

KARLIN, Bankruptcy Judge.

Debtor, Jill Stephens (“Debtor”), appeals a bankruptcy court judgment
finding that Iowa’s homestead exemption laws are inapplicable to property
outside the State of Iowa. We reverse and remand for further proceedings

* The parties did not request oral argument, and after examining the briefsand appellate record, the Court has determined unanimously that oral argumentwould not materially assist in the determination of this appeal. See Fed. R.
Bankr. P. 8012. The case is therefore ordered submitted without oral argument.

consistent with this decision.

Debtor and her former husband owned a home in Iowa for several years. In
June 2005, in anticipation of their divorce, they sold the home and deposited the
proceeds of the sale into a separate, segregated bank account in Iowa. In August
2005, Debtor permanently moved to Oklahoma and transferred her share of the
sale proceeds, about $50,000, to a bank account in that state. Thereafter, Debtor
used approximately $9,000 of those funds to cover moving expenses and to
replace household goods. The remaining proceeds were left in the segregated

On May 21, 2007, almost two years after the sale of the house, Debtor filed
a voluntary Chapter 7 petition in Oklahoma, and claimed the remaining sale
proceeds exempt under Oklahoma law.1 The Chapter 7 Trustee, L. Win Holbrook
(“Trustee”), objected to Debtor’s exemption claim. Prior to the hearing on
Trustee’s objection, the parties stipulated to the relevant facts and filed cross-
motions for summary judgment, requesting that the bankruptcy court determine
the applicable exemption law.

This Court has jurisdiction to hear timely-filed appeals from final
judgments and orders of bankruptcy courts within the Tenth Circuit, unless one of
the parties elects to have the district court hear the appeal.2 The bankruptcy court
issued its ruling in a memorandum decision on October 7, 2008. Pursuant to that
ruling, a judgment was entered on October 15, 2008, fully and finally resolving

1 Debtor’s “domicile” for the purposes of venue was Oklahoma, since shehad resided there for more than 180 days prior to filing. Therefore, the filing ofher petition in Oklahoma was appropriate. 28 U.S.C. § 1408(1).

2 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002.


the exemption issue.3 Debtor timely filed a notice of appeal from that judgment.
Since neither party has requested the appeal be heard by the district court, this
Court has appellate jurisdiction in this matter.

The issue in this case is whether Iowa exemption law allows Debtor to
claim as exempt certain proceeds received from the sale of her Iowa homestead,
which property is now held in her new state of residence - Oklahoma. This is an
issue of statutory interpretation, which is reviewed by this Court de novo.4

Section 522(b) of the Bankruptcy Code allows debtors to exempt either
property specified in a list found in § 522(d) (the “federal exemptions”) or “any
property that is exempt under Federal law, other than subsection (d) of this
section, or State or local law,” as well as jointly owned property that “is exempt
from process under applicable nonbankruptcy law.”5 Debtors generally have a
choice between electing the federal exemptions and those allowed under state law,
unless applicable state law forbids it.6 This is commonly referred to as the “optout”
provision, and it allows states to require its debtors to only use exemptions
available under state and nonbankruptcy federal law if those exemptions are

3 A bankruptcy court’s decision granting or denying a claimed exemption is afinal order for purposes of appellate review. In re Brayshaw, 912 F.2d 1255,1256 (10th Cir. 1990).

4 In re Lanning, 545 F.3d 1269, 1274 (10th Cir. 2008). Given the paucity ofargument relevant to this issue contained in Debtor’s brief, this Court considered
affirming the bankruptcy court’s judgment on the ground that inadequatelybriefed appellate arguments are forfeited. Phillips v. Calhoun, 956 F.2d 949, 95354
(10th Cir. 1992). However, because there exists stipulated facts, a clearstatement and discussion of the issue by the bankruptcy court, and an appellee’sbrief directly on point (with no argument that the appellant’s brief is inadequate),
we have opted to treat Debtor’s appellate brief as “adequate” for the purposes ofthis appeal.

5 Section 522(b)(3).

6 Section 522(b)(2).


available to the debtor.

Prior to the enactment of The Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (“BAPCPA”), debtors were required to apply the
exemption laws from the state that was their domicile for the 180 days
immediately preceding the date of the filing of the petition or the state where they
were domiciled for the greater portion of that 180-day period.7 BAPCPA
drastically changed the domicile requirements for determining which state’s
exemption laws are applicable to a debtor.8

Under BAPCPA, the test for determining which state’s exemption laws
apply depends on whether debtor has lived in the state where the bankruptcy
petition is filed for at least 730 days immediately preceding the filing. If so,
debtor’s exemptions are evaluated under either the federal exemption laws or the
exemption laws of the filing state, depending upon whether that state is an “optout”

If the debtor’s domicile has not been in the filing jurisdiction for at least
730 days, the court is required to look back to the 180-day period immediately
preceding the 730-day period. In that event, the debtor’s domicile for exemption
law purposes is the state where debtor lived the longest during that 180-day “look
back” period. Again, once domicile is determined, either federal exemption laws
will apply or, if the domiciliary state is an opt-out state, the court will apply the
exemption laws of that state.

There is no dispute that although Debtor properly filed the case in

7 11 U.S.C. § 522(b)(2)(A) (2004).

8 The “object of the amendment was to prevent persons from takingadvantage of favorable state exemptions by moving [to a more favorable state]
within two years before bankruptcy.” Bankr. Exemption Manual § 4:5 (2008 ed.).
See also David A. Samole & David L. Rosendorf, Homestead Exemption NoLonger “Debtors’ Paradise,” 24-10 Am. Bankr. Inst. J. 6 (December
2005/January 2006).


Oklahoma, she did not live in Oklahoma for a full 730 days prior to the filing of

her petition. Instead, her domicile was located in Iowa for the entire 180-day

look back period. Therefore, the bankruptcy court correctly found that Iowa’s

exemption laws governed Debtor’s bankruptcy case. Because Iowa is an opt-out

state, if the pertinent Iowa exemption laws apply to Debtor, she can only claim

the exemptions provided under Iowa law. She cannot elect the federal


Iowa’s homestead statute provides that, “[t]he homestead of every person is

exempt from judicial sale where there is no special declaration of statute to the

contrary.”10 Additionally, Iowa’s homestead exemption extends to new

homesteads that are purchased with proceeds from the sale of an exempt

homestead.11 Finally, pursuant to Iowa case law, proceeds from the sale of a

homestead, which are intended to be reinvested in a new homestead, remain

exempt “for a reasonable time.”12

Had Debtor remained in Iowa with the intent to purchase a new residence

there, her proceeds would be fully exempt if the court found it reasonable for her

9 Iowa Code § 627.10 (1998) provides that a “debtor to whom the law of thisstate applies on the date of filing of a petition in bankruptcy is not entitled toelect to exempt from property of the bankruptcy estate the property that isspecified in 11 U.S.C. § 522(d) (1979). This section is enacted for the purposeset forth in 11 U.S.C. § 522(b)(1) (1979).” This Court does not here consider or
decide whether a debtor would be entitled to the federal exemptions, even if herdomicile is an opt-out state, in the event the exemption laws of the domicile statedo not allow extraterritorial application.

10 Iowa Code § 561.16 (1992).

11 Iowa Code § 561.20 (1992) (“Where there has been a change in the limitsof the homestead, or a new homestead has been acquired with the proceeds of theold, the new homestead, to the extent in value of the old, is exempt fromexecution in all cases where the old or former one would have been”).

12 Millsap v. Faulkes, 20 N.W.2d 40, 41 (Iowa 1945) (“one who sells hishomestead may for a reasonable time hold the proceeds exempt in order toreinvest in a new homestead to the extent in value of the old”); Blakeslee v. Paul,
238 N.W. 447, 448 (Iowa 1931) (“debtor has a reasonable time after the sale ofhis homestead to invest the proceeds in a new homestead”).


to have held them in the segregated account for the almost two year period
between the house sale and the bankruptcy filing. However, Debtor did not
remain in Iowa. Instead, she moved permanently to Oklahoma and took the
proceeds from the sale of her homestead with her, purportedly with the intent to
reinvest those proceeds in a new homestead in Oklahoma.

Because the proceeds from the sale of the homestead are no longer located
in Iowa, the issue then becomes whether Iowa’s exemption laws are applicable to
property located outside that state. In other words, do Iowa’s exemption laws
have “extraterritorial effect?”13

Before deciding whether Iowa’s homestead statute is limited to real
property located within the state, however, the Court takes note of the fact that
one recently reported decision holds that the Bankruptcy Code preempts any state
law that imposes limits on the extraterritorial effect of an exemption statute. In In
re Camp,14 the bankruptcy court held that Florida’s express statutory prohibition
against applying its exemption laws to property located outside the state was
preempted by the choice of laws provisions found in § 522(b). Based on this
ruling, a debtor who had moved from Florida to Texas was allowed to claim the
Florida homestead exemption on the newly acquired property located in Texas,
regardless of Florida law’s express prohibition against doing so.

This Court declines to adopt the reasoning in In re Camp, and instead holds
that the choice of laws provisions found in § 522(b) do not override, or preempt,
state laws that prohibit the application of a state’s exemption laws to property
located outside the state. First, it is well-established that property rights in

13 See William H. Brown, Lawrence R. Ahern, III & Donna T. Snow, The
Extraterritorial Effect of Homestead Exemption Statutes: An Emerging Issue,
Norton Bankr. L. Adviser at 2 (Jan. 2006).

14 396 B.R. 194 (Bankr. W.D. Tex. 2008).


bankruptcy “are created and defined by state law.”15 As such, every bankruptcy

case necessarily involves the bankruptcy court’s consideration and application of

state law. It appears to this Court that Congress was not seeking to exercise any

preemption right by § 522(b)(3)(A), which expressly allows states to opt out of

the federal exemption system and impose their own exemptions within the

bankruptcy context.16 In fact, it seems to have intended the opposite. “[R]ather

than preempting the [exemption] area, Congress expressly authorizes the states to

‘preempt’ the federal legislation.”17

A second reason we reject In re Camp’s preemption approach is based on

additional language inserted at the end of § 522(b)(3), which was simultaneously

added to § 522 with the 730 day/180 day language contained within the same

statutory subsection.18 This “hanging paragraph” in § 522(b)(3) creates a safety

15 Butner v. United States, 440 U.S. 48, 55 (1979) (holding that “[u]nlesssome federal interest requires a different result, there is no reason why suchinterests should be analyzed differently simply because an interested party isinvolved in a bankruptcy proceeding”).

16 Admittedly, Congress’s intent in allowing states to opt out of the federalexemption scheme is not entirely clear, since the provision was the result of alegislative compromise in connection with adoption of the 1978 Bankruptcy Code.
See William Houston Brown, Lawrence R. Ahern, III & Nancy Fraas MacLean,
History of Exemptions in Bankruptcy Law, Bankr. Exemption Manual § 1:2 (2008

17 Rhodes v. Stewart, 705 F.2d 159, 163 (6th Cir. 1983).

18 Under the In re Camp analysis, we presume the only time this “hangingparagraph” would apply would be when a debtor had lived in a foreign countryduring the applicable 730/180 day time period. Given that the hanging paragraphwas added simultaneously with the new choice of laws provision to prevent forumshopping, it is unlikely that the “foreign debtor” fact pattern was the problemCongress was primarily trying to remedy by allowing the debtor to use the federalexemptions contained in the “hanging paragraph.” Instead, it is much more likelythat the “hanging paragraph” was inserted to protect a debtor who wouldotherwise lose all exemptions if a state’s property laws were interpreted to denythe debtor the state’s exemptions. That situation became much more likely tooccur with the simultaneous adoption of the requirement that a debtor have livedin the filing state for at least two years and if not, that the debtor would be subjectto the exemption laws of a state where he had not lived for over two years. Cf.
US West Commc’ns, Inc. v. Hamilton, 224 F.3d 1049, 1053 (9th Cir. 2000)



net for debtors who are rendered “ineligible for any exemption” by subparagraph
(A), by allowing them to claim the federal exemptions set forth in § 522(d).
Under this provision, as the bankruptcy court correctly noted, if a debtor is unable
to claim a state’s homestead exemption because of territorial restrictions, she is
not then deprived of claiming any exemption.19 The preemption approach
enunciated in In re Camp, which would always apply the exemptions of the
applicable state, would essentially render the added language at the end of
§ 522(b)(3) meaningless. Our job, as interpreters of Congressional enactments, is
to give meaning and effect to every part of a statute, if it is possible to do so, and
we are loathe to interpret a statute in a way that would eliminate the need for one

of its provisions.20

We instead adopt the procedure used in In re Adams21 and In re Jevne.22 If

the plain language of the pertinent state’s homestead statute23 restricts its
application to property located within the state, the statute cannot be given

18 (...continued)
(holding that a court’s obligation to construe harmoniously two sections that were
enacted at the same time and form part of the same Act is “particularly acute,”
given the sections were enacted by the same legislative body at the same time).

19 Cf. In re Adams, 375 B.R. 532, 533 (Bankr. W.D. Mo. 2007) (effectively
rejecting In re Camp by holding that debtors were not entitled to use the Florida
homestead exemption to exempt their Missouri home, even though Florida was
deemed to be debtors’ domiciliary under the new § 522(b)(3) choice of law
provisions, but would be entitled to use the § 522(d) federal exemptions because
Florida’s exemption laws were not extraterritorial).

20 In re Sweeney, 341 B.R. 35, 40 (10th Cir. BAP 2006), aff’d, 492 F.3d 1189
(10th Cir. 2007) (“we may not construe a statute in such a way as to nullify or
make meaningless words and phrases”).

constitution should be first consulted. See In re Adams, 375 B.R. at 533 (holding

21 375 B.R. 532.
22 387 B.R. 301, 304-06 (Bankr. S.D. Fla. 2008).
23 If the state has a constitutional provision governing homesteads, the

that bankruptcy courts must first consider any constitutional provision regardinghomesteads, before applying homestead statutes). The Court was unable to locate
any homestead provision in the Iowa constitution.


extraterritorial effect by the bankruptcy court, and the debtor will only be eligible
for the federal exemptions under the savings clause contained in § 522(b)(3). If
the plain language of a state’s homestead statute is silent as to its extraterritorial
effect, the Court must then look to that state’s case law to see if the appellate
courts of that state have interpreted their homestead statute to apply to property
located outside of the state.

If no state case law exists on whether the exemption has extraterritorial
application, the bankruptcy court must then interpret the state’s homestead law
according to its general principles governing exemptions, and more specifically
homestead exemptions, in that state. Given the fact that most, if not all, state
courts generally require homestead exemptions to be liberally construed in favor
of debtors, it is very likely that a state’s homestead exemption will be given
extraterritorial effect absent a limitation placed on the exemption by either the
statute itself, or a case interpreting that statute.

Here, the bankruptcy court found, based upon its review of Iowa law, that
the Iowa homestead exemption has no extraterritorial effect and cannot be used to
exempt property located outside the state. On this issue, we disagree with the
bankruptcy court’s conclusion.

The bankruptcy court held that “Iowa case law is clear that the homestead
exemptions apply only to residents of Iowa.”24 The court did not base its decision
on the language of the existing homestead statute, which contains no such
restriction, but instead on three Iowa Supreme Court cases, decided between 1881
and 1917, interpreting the version of the homestead statute in existence when
those cases were decided.25

24 Memorandum of Decision and Order Granting Trustee’s Motion forSummary Judgment at 4, in App. at 4.

25 Leonard v. Ingram, 10 N.W. 804 (Iowa 1881); Lyon v. Callopy, 54 N.W.


We find the cited cases to be of limited use because each was decided

based upon a different version of Iowa’s homestead law than the one in existence

when this Debtor filed her bankruptcy petition. In each of those cases, the Iowa

homestead law expressly limited its application to residents of the state.26 Iowa’s

current statutes— either its opt-out or its homestead statute— contain no such


In contrast, however, the current Iowa personal property exemption statute

does contain a residency restriction. That exemption is expressly restricted to a

“debtor who is a resident of this state.”27 One basic principle of statutory

construction is that, where the legislature includes specific language in one

provision and omits it another, it is presumed that it acted intentionally with

respect to the omission.28 Thus, the Iowa legislature’s inclusion of a residency

requirement in its personal property exemption statute, while making no reference

25 (...continued)
476 (Iowa 1893); Dickson v. Cooper, 164 N.W. 734 (Iowa 1917). See also
Rogers v. Raisor, 14 N.W. 317 (Iowa 1882).

26 In addition to the fact that each decision interpreted a statute containing
language with a residency requirement, which is omitted from the one we must
interpret, we note that each of these cases is factually distinguishable, as well.
For example, in Leonard v. Ingram, the issue was not whether Iowa’s exemption
laws were applicable to property outside of Iowa, as here, but at what point in
time debtor could be said to have “abandoned” her Iowa residence such that it lost
its status as a homestead. The Lyon v. Callopy case involved a debtor who lived
and worked in Wisconsin but whose wages were garnished in Iowa. Debtor
claimed that the Iowa courts should deem his wages exempt from garnishment
under Wisconsin law, even though his Iowa wages were the subject of the
garnishment, and Iowa law apparently did not exempt them. In Dickson v.
Cooper, the issue was whether a mortgage, executed at a time when the
mortgagors were nonresidents of the state of Iowa and could make no claim for
exemptions in this state, became a valid lien upon the property. Though the Iowa
court made the broad statement that “[t]he exemption laws of this state are to
residents thereof only,” its decision was based on its determination that a valid
lien that attached to property in another state does not become invalid when the
property is subsequently brought to Iowa. 164 N.W. at 735.

27 Iowa Code § 627.6 (1998).

28 See, e.g., In re Ballard, 526 F.3d 634, 640 (10th Cir. 2008) (citing Russello

v. United States, 464 U.S. 16, 23 (1983)).

to residency in its homestead statute, is presumed to be intentional.29

We conclude that the pertinent Iowa statutes in effect when this bankruptcy
petition was filed do not plainly limit its homestead exemption either to residents
of, or real property located within, the State of Iowa.30 Moreover, the Iowa case
law that discusses extraterritorial application of Iowa’s exemption laws is
distinguishable both factually and because it considered either a different version
of the same statute, or a different statute altogether.

 In applying the methodology described above, we conclude that Iowa’s
homestead exemption can be applied to real property (or here, proceeds) located
outside the state. Because Iowa’s homestead exemption law is “silent” as to its
availability under these facts, and there appears to be no case law directly on
point that addresses the current version of the homestead exemption,31 the statute
should be given extraterritorial effect. This holding is consistent with both the
liberal construction afforded to Iowa’s exemption laws, and the well-settled
principle that “[t]he homestead right in Iowa is peculiarly favored.”32

We hold that the bankruptcy court erred in finding that Iowa’s homestead
exemption, as it is currently written, is not available to real property located
outside the state. We therefore remand this matter to the bankruptcy court for a
determination of whether or not the Iowa homestead exemption, which has been

29 In re Francisco, 390 B.R. 700, 703 (10th Cir. BAP 2008).

30 Accord, Guide to Exemption Options for Nonresident Debtors, 3 NortonBankr. L. & Prac. 3d App. 56-B (2009), n.68 (citing Iowa Code § 561.16 and In
re Williams, 369 B.R. 470 (Bankr. W.D. Ark. 2007)) for the conclusion thatIowa’s homestead exemption is not limited to residents).

31 This Court could not find, and was not cited to, any Iowa case lawinterpreting the current version of the homestead statute as imposing a residencyrequirement.

32 In re Meyer, 392 B.R. 416, 419 (Bankr. N.D. Iowa 2008) (citing Gustafson

v. Fogleman, 551 N.W.2d 312, 314 (Iowa 1996)).

interpreted to apply only to sale proceeds that are held for a “reasonable” time,
exempts the sale proceeds from the sale of Debtor’s Iowa homestead. In other
words, the bankruptcy court must determine whether holding those sale proceeds
from June 2005 until the date of filing would be deemed “reasonable” under Iowa

We specifically do not address the bankruptcy court’s conclusions that, in
the event that Debtor is “ineligible” for the Iowa homestead exemption, (1) she is
not entitled to the federal homestead exemption set forth in § 522(d)(1), but (2)
that she is entitled to the federal “wild-card” exemption set forth in § 522(d)(5),
as neither of those holdings was appealed by the parties.


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