Todd James Oliver

• Court: United States Bankruptcy Court, E.D. California
• Decided: March 23, 2023
• Docket: 22-20811
• Status: Unknown

Opinion

1 FOR PUBLICATION 2 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF CALIFORNIA 3 4 IN RE TODD JAMES OLIVER, ) dba T. James Construction, dba ) Case No. 22-20811-C-7 5 James Built Construction Inc., ) ) DCN No. PGM-1 6 __________________________________D_e_b_t_o_r_.___________) 7 8 9 OPINION 10 CHRISTOPHER M. KLEIN, Bankruptcy Judge: 11 In this case of early impression, the debtor’s motion for an 12 order compelling abandonment of an exempt homestead on the theory 13 of inconsequential value and benefit to the estate under 11 14 U.S.C. § 554(b) is denied as premature on account of § 522(q). 15 The value and benefit to the estate remains uncertain 16 because § 522(q)(1)(B)(ii) could limit the claimed $626,400 17 exemption to $189,050 if pending adversary proceedings alleging 18 fraud and fiduciary fraud establish there is debt arising from 19 “fraud, deceit, or manipulation in a fiduciary capacity.” 20 Depending on the outcome of that open question of law, the 21 trustee might have more than $250,000 available to pay claims if 22 the § 522(q) cap, which was dormant in California until the state 23 increased its homestead exemption in 2021, applies. 24 As the time for any “party in interest” to object to 25 exemptions under § 522(q) does not, per Federal Rule of 26 Bankruptcy Procedure 4003(b)(3), expire until the case is closed, 27 abandonment will be under § 554(c) incident to case closure. 28 The motion to compel abandonment under § 554(b) is DENIED. 1 Facts 2 Chapter 7 debtor Todd Oliver elected to exempt his residence 3 in Soda Springs, Placer County, California, for $626,400 under 4 new California exemptions effective in 2021.1 5 He valued the property at $825,000, subject to consensual 6 liens of $379,155 and to two judgment liens totaling $134,339. 7 In lien avoidance proceedings under § 522(f), the judgment 8 lienors were given time to gather evidence probative of whether 9 the property is his residence and its value exceeded the 10 $1,005,555 apparently needed to preserve a judgment lien. When 11 such evidence was not forthcoming, the liens were ordered avoided 12 as impairing the claimed exemption under the § 522(f) calculus on 13 the assumption the exemption is $626,400. 14 Two pending adversary proceedings seek to except debts from 15 discharge on counts under 11 U.S.C. §§ 523(a)(2) and (a)(4). 16 Meanwhile, the debtor filed the instant motion to compel 17 abandonment of his exempt property pursuant to § 554(b) as being 18 1Cal. Code Civ. Pro. § 704.730 provides: 19 (a) The amount of the homestead exemption is the greater 20 of the following: 21 (1) The countywide median sale price for a single-family home in the calendar year prior to the 22 calendar year in which the judgment debtor claims the exemption, not to exceed six hundred thousand dollars 23 ($600,000). (2) Three hundred thousand dollars ($300,000). 24 (b) The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based 25 on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published 26 by the Department of Industrial Relations. 27 Cal. Code Civ. Pro. § 704.730 (2021). The 2022 adjusted exemption 28 range is $312,200 to $626,400; in 2023, $339,196 to $678,391. 1 of inconsequential value and benefit to the estate. He reasons 2 that more than 30 days have transpired since the last amendment 3 to Schedule C and that no objection to his claim of exemption was 4 filed within the deadline prescribed by Rule 4003(b)(1). 5 6 Jurisdiction 7 Jurisdiction is founded on 28 U.S.C. § 1334(a). A motion to 8 compel abandonment of property of the estate is a core 9 proceeding. 28 U.S.C. § 157(b)(2)(A). 10 11 Analysis 12 The fly in the ointment is 11 U.S.C. § 522(q)(1)(B)(ii), 13 which preempts and caps California’s recently-increased homestead 14 exemption at $189,050 for debtors with debt arising from “fraud, 15 deceit, or manipulation while acting in a fiduciary capacity.” 16 The issue is not peculiar to California, which measures its 17 maximum exemption by “countywide median sale price for a 18 single-family home in the calendar year prior to the calendar 19 year.” The State of Washington has recently-enacted a similar 20 homestead exemption measured by the “county median sale price of 21 a single-family home in the preceding calendar year,” which could 22 exceed the exemption cap. Rev. Code Wash. § 6.13.030 (2021). 23 Paucity of precedent regarding a phenomenon migrating into 24 the Ninth Circuit warrants more extensive analysis than is usual. 25 26 I 27 The Statutory Context 28 The 2005 Amendments to the Bankruptcy Code, commonly known 1 as BAPCPA, included a package that included three new subsections 2 to § 522 in order to address perceived abuses of exemptions. 3 By these amendments Congress exercised its Constitutional 4 authority under the Bankruptcy Clause at Article I, Section 8, to 5 preempt state-law exemptions with which it had not previously 6 interfered. U.S. Const. Art. 1, § 8. 7 8 A 9 Exemption Planning 10 The first provision, § 522(o),2 is a quasi fraudulent 11 transfer provision addressed to abusive exemption planning 12 transfers infected by actual intent to hinder, delay, or defraud 13 creditors made within the 10 years preceding bankruptcy. The 14 reduction of an exemption on account of a § 522(o) violation 15 turns on actual intent and does not require that the debtor have 16 relocated from another state. 11 U.S.C. § 522(o). 17 2Section 522(o) provides: 18 (o) For purposes of subsection (b)(3)(A), and notwithstanding 19 subsection (a), the value on an interest in — (1) real or personal property that the debtor or a 20 dependent of the debtor uses as a residence; 21 (2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence; 22 (3) a burial plot for the debtor or a dependent of the debtor; or 23 (4) real or personal property that the debtor or a dependent of the debtor claims as a homestead; 24 shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 25 10-year period ending on the date of the filing of the petition with intent to hinder, delay, or defraud a creditor and that the 26 debtor could not exempt, or that portion that the debtor could 27 not exempt, under subsection (b), if on such date the debtor had held the property so disposed of. 28 11 U.S.C. § 522(o). 1 B 2 Bankruptcy Tourism 3 The second added subsection, § 522(p),3 addressed abusive 4 bankruptcy tourism to remedy the so-called “mansion loophole” 5 that figured prominently in legislative debate. 6 It had become regarded as a notorious abuse that individuals 7 facing large liabilities would relocate from low-exemption states 8 to high-exemption states, such as Florida or Texas, and purchase 9 mansions as a homestead before filing a bankruptcy case. 10 New subsection § 522(p) prescribes an inflation-adjusted 11 exemption cap (presently $189,050) for interests in property 12 3Section 522(p) provides: 13 (p)(1) Except as provided in paragraph (2) of this subsection 14 and sections 544 and 548, as a result of electing under 15 subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired 16 by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate [now 17 $189,050] in value in — (A) real or personal property that the debtor or a dependent 18 of the debtor uses as a residence; (B) a cooperative that owns property that the debtor or a 19 dependent of the debtor uses as a residence; (C) a burial plot for the debtor or a dependent of the 20 debtor; or 21 (D) real or personal property that the debtor or a dependent of the debtor claims as a homestead; 22 (2)(A) The limitation under paragraph (1) shall not apply to an exemption claimed under subsection (b)(3)(A) by a family 23 farmer for the principal residence of such farmer. (B) For purposes of paragraph (1), any amount of such 24 interest does not include any interest transferred from a debtor’s previous principal residence (which was acquired prior 25 to the beginning of such 1215-day period) into the debtor’s current principal residence, if the debtor’s previous and current 26 residences are located in the same State. 27 11 U.S.C. § 522(p). 28 1 “acquired” within 1215 days preceding the bankruptcy case filing 2 by persons who move from another state. 11 U.S.C. § 522(p). 3 This provision complemented a revision of § 522(b)(3) that 4 saddles those who change domicile with the exemptions of their 5 former domicile for up to two years. 11 U.S.C. § 522(b)(3)(A). 6 7 C 8 Abusive Exemption of Debt Arising From Misconduct 9 The third provision, § 522(q),4 prescribes the same $189,050 10 11 4Section 522(q) provides: 12 (q)(1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt 13 any amount of an interest in property described in subparagraph (A), (B), (C), and (D) of subsection (p)(1), which exceeds in the 14 aggregate [now $189,050] if — 15 (A) the court determines, after notice and a hearing, that the debtor has been convicted of a felony (as defined 16 in section 3156 of title 18), which under the circumstances, demonstrates that the filing of the case was an abuse of the 17 provisions of this title; or (B) the debtor owes a debt arising from — 18 (i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act 19 of 1934), any State securities law, or any regulation or order issued under Federal securities laws or State 20 securities laws; 21 (ii) fraud, deceit or manipulation in a fiduciary capacity or in connection with the purchase and sale of any 22 security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 or under section 6 of the 23 Securities Act of 1933; (iii) any civil remedy under section 1964 of title 24 18; or (iv) any criminal act, intentional tort, or willful 25 or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years. 26 (2) Paragraph (1) shall not apply to the extent the amount of 27 an interest in property described in subparagraphs (A), (B), (C) and (D) of subsection (p)(1) is reasonably necessary for the 28 support of the debtor and any dependent of the debtor. 1 exemption cap as § 522(p), but does not depend on when interests 2 in property are acquired and applies to everyone, not just 3 persons relocating from another state. It is designed to close 4 the “mansion loophole” for persons who commit specified forms of 5 misconduct and features a savings clause to ameliorate harsh 6 consequences for debtors and dependents. 11 U.S.C. § 522(q).5 7 8 II 9 Early Debates Regarding Construction 10 The background and legislative history of the 2005 additions 11 to § 522 came into focus in the course of the first substantial 12 controversy regarding their terms. 13 The phrase “as a result of electing under subsection 14 (b)(3)(A) to exempt property under State or local law” that is in 15 §§ 522(p) and (q) stirred debate about whether Congress had 16 succeeded in closing the dysfunctional “mansion loophole.” 17 One school invoked “plain meaning” to contend that “result 18 of electing” meant that the cap on exemptions could not apply in 19 states that had exercised the § 522(b)(2) authority to prohibit 20 use of the § 522(d) federal exemptions.6 In re McNabb, 326 B.R. 21 22 11 U.S.C. § 522(q). 23 5The House Judiciary Committee Report on BAPCPA and § 522(q)(1)(B)(ii) & (iii) noted “concerns that former Enron 24 Chairman Kenneth Lay would be entitled to an unlimited homestead exemption in his native Texas should he file for Bankruptcy.” 25 H.R. REP. No. 109-31(1) at 595 (2005). 26 6A state’s power to “opt-out” of the federal bankruptcy 27 exemptions at § 522(d) is at § 522(b)(2): 28 (b)(2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that 14785 (Bankr. D. Ariz. 2005). It reasoned that no “election” occurs 2 there is only one possible exemption choice. However, the 3 [paradigm “mansion loophole” example is in such a jurisdiction. 4 The other school contended the cap applies in all states. To 5 hold otherwise, based on the history of the “mansion loophole,” 6 }would defeat the plain purpose of the exemption cap. E.g., In re 7 \|Virissimo, 322 B.R. 201, 207 (Bankr. D. Nev. 2005). 8 In 2006, Judge Markell, rebutting McNabb, detailed the history of the “mansion loophole” abuse in the context of rules 10 Jof statutory construction to conclude that the phrase “result of 11 flelecting” may have been inept draftsmanship but could not be 12 |Iconstrued so as to defeat Congress’ avowed purpose of closing the 13 loophole. In re Kane, 336 B.R. 477, 479-85 (Bankr. D. Nev. 2006). 14 The view stated in Kane gains support from recognition of 15 fallacy in the McNabb reasoning in which one exemption “election” 16 }was overlooked. The key is the threshold provision in § 522 (b) (1) 17 an individual debtor “may exempt” property from property of 18 estate.’ Virissimo, 322 B.R. at 207. As the word “may” is 19 permissive, not mandatory, it follows that every claim of 20 fexemption entails “electing” to exempt property. 21 22 is applicable to the debtor under paragraph (3) (A) 53 specifically does not so authorize.

11 U.S.C. § 522 (b) (2). ‘The first sentence of § 522(b) (1) provides: 26 (bo) (1) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the 27 property listed in either paragraph (2) or in the alternative, paragraph (3) of this subsection. es 11 U.S.C. § 522 (b) (1).

1 In short, the fallacy of false choice infects McNabb. One cannot ignore the election preliminary to every claim of 3 Jlexemption. There is always a § 522(b) (1) “election” to exempt or 4 |not exempt, regardless of whether the state has opted out of SWS exemptions. Nor is the “no-exemption” election absurd; 6 l|debtors may elect to forego exemptions for various reasons. 7 The weight of modern trial-court authority supports the 8 |/Kane-Virissimo analysis. 9 The Bankruptcy Appellate Panel and at least one District 10 Court in this circuit have approved the Kane-Virissimo view that and § 522(q) apply in all states. E.g., Caldwell v. 12 |INelson (In re Caldwell), 545 B.R. 605, 609 (9th Cir. BAP 2016); 13 Kane v. Zions Bancorporation, N.A., □ F. Supp. 3d__, Bankr. L. 14 Rep. 7 83,821, 2022 Westlaw 4591787, at *6-*8 (N.D. Cal. 9/29/22) 15 | (Orrick, D.J.), notice of appeal filed, 9th Cir. No. 22-16674. 16 This court agrees and holds that the exemption caps in 17 |S 522(e) and § 522(q) apply in California bankruptcy cases. 18 19 Til 20 § (gq) Misconduct Issues 21 Unlike the 522(p) 1215-day exemption cap, which has been the 22 subject of cases involving timing issues and the meaning of 23 “acquire,” the terms of the § 522(q) exemption cap for bad acts 24 only occasionally been addressed in reported cases. 25 26 27 Cross-References in § 522(p) and § 522 (q) 28 What is the effect of the cross-reference in § 522(q) to the

1 1215-day § 522(p) cap that applies to bankruptcy tourists? 2 The syntax of the two subsections reveals that the cross- 3 references in § 522(q)(1) to paragraphs (A), (B), (C), and (D) of 4 § 522(p)(1) operate merely to designate the property to which the 5 permanent cap of § 522(q) applies. Specifically, the property 6 affected by a § 522(q) cap is the same property that is subject 7 to the § 522(p)(1) 1215-day temporary cap. 8 The cross-references do not, however, tether § 522(q) to 9 1215-day provision of § 522(p) in any other respect. The § 522(q) 10 exemption cap applies to all homesteads wherever situated. To 11 hold otherwise would invalidate and leave § 522(q) meaningless. 12 13 B 14 Uncertain Meanings of Misconduct 15 The bad acts that trigger the § 522(q)(1) permanent cap on 16 exemptions are a hodge-podge of five little-explored categories: 17 (1) abusive filing of a bankruptcy case after being convicted of a felony; 18 (2) debt from any violation of federal or state 19 securities laws and regulations or orders issued under them;

20 (3) debt from fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or 21 sale of any security register under specified sections of the Securities Exchange Act of 1934 or the Securities Act of 22 1933;

23 (4) debt from any civil remedy for racketeering; and

24 (5) debt from any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical 25 injury or death to another individual within the preceding five years. 26 11 U.S.C. § 522(q)(1). 27 There is a savings clause at § 522(q)(2) permitting the 28 § 522(q)(1) exemption cap to be exceeded to the extent 1 “reasonably necessary for the support of the debtor and any 2 dependent of the debtor.”8 3 4 1 5 There is authority under § 522(q)(1)(A) construing what 6 “under the circumstances” constitutes an “abuse” of title 11 7 following a felony conviction. In re Cotton, 647 B.R. 767 (Bankr. 8 W.D. Wash. 2022) (Washington exemption). 9 10 2 11 Violation of securities laws for purposes of 12 § 522(q)(1)(B)(i) has been addressed in a Texas decision. In re 13 Bounds, 491 B.R. 440 (Bankr. W.D. Tex. 2013). 14 15 3 16 The § 522(q)(1)(B)(ii) clause regarding “fraud, deceit, and 17 manipulation in a fiduciary capacity” was addressed in an Enron 18 executive’s bankruptcy. In re Presto, 376 B.R. 554, 586-601 19 (Bankr. S.D. Tex. 2007). 20 21 4 22 The § 522(q)(1)(B)(iii) clause regarding “any civil remedy 23 24 8Section 522(q)(2) provides: 25 (q)(2) Paragraph (1) shall not apply to the extent the amount of an interest in property described in subparagraphs 26 (A), (B), (C), and (D) of subsection (p)(1) is reasonably 27 necessary for the support of the debtor and any dependent of the debtor. 28 11 U.S.C. § 522(q)(2). 1 funder section 1964 of title 18,” which relates to racketeering, 2\\does not yet appear in reported decisions. 3 4 5 The First Circuit construed the § 522(q) (1) (B) (iv) clause 6 |regarding “any criminal act, intentional tort, or willful or 7 |Ireckless misconduct that caused serious physical injury or death 8 another individual in the preceding 5 years.” Larson v. Howell re Larson), 513 F.3d 325 (lst Cir. 2008), aff’g 340 B.R. 444 10 (Bankr. D. Mass 2006) (negligent homicide conviction). 11 12 13 § (gq) (2) Savings Clause 14 The savings clause of § 522(q) (2) for sums exceeding the 15 522(q) (1) cap regarding what is “reasonably necessary for the 16 support of the debtor and any dependent of the debtor” has been 17 construed in a few cases. E.g., Bounds, 491 B.R. at 452-54; 18 ]Presto, 376 B.R. at 598-600. 19 20 21 Fraud, Deceit, or Manipulation in a Fiduciary Capacity 22 The provision of particular pertinence to this case is 23 522 (q) (1) (B) (ii) prescribing a $189,050 exemption cap if the 24 ldebtor owes a debt “arising from” —- “fraud, deceit or 25 manipulation in a fiduciary capacity.” 26 Whether the provision, which also is in § 548(e) (2) (B), 27 }Wencompasses the issues in the two pending adversary proceedings 28 fWalleging causes of action under § 523(a) (2) and § 523(a) (4) is an

1 open question as to which this court expresses no view. 2 Key questions will need to be resolved in the usual 3 adversary manner: 4 What constitutes the requisite “fraud”? 5 What constitutes the requisite “deceit”? 6 What constitutes the requisite “manipulation”? 7 What constitutes the requisite “fiduciary capacity”? 8 Does “in a fiduciary capacity” modify “fraud” or “deceit”? 9 Although similarities of language with § 523(a)(2) and 10 § 523(a)(4) are intriguing, one would need to consider the 11 implications of why Congress did not merely clone them. 12 Answers to those questions must await decisions made in the 13 usual case-by-case adversary manner. 14 15 IV 16 Procedure and Burdens 17 Although the paucity of § 522(q) precedent regarding 18 substantive provisions leaves much uncertain, it is possible to 19 be more definite about procedure and burdens. 20 21 A 22 Deadline to Make § 522(q) Objections 23 Rule 4003(b)(3) permits an objection to exemption under 24 § 522(q) to be made by any party in interest at any time before 25 the case closes.9 26 27 9Rule 4003(b)(3) provides: 28 (b)(3) An objection to a claim of exemption based on § 522(q) shall be filed before the closing of the case. If 1 The expiration of the normal deadline under Rule 4003(b)(1) 2 — usually 30 days after meeting of creditors or last amendment to 3 claim of exemption10 — does not affect the § 522(q) deadline. 4 In other words, open season on § 522(q) theories for 5 limiting exemptions to the exemption cap does not expire before 6 the case closes. 7 The prolonged opportunity to object under § 522(q) means 8 that an order under § 554 authorizing or compelling abandonment 9 cannot be trusted to be final before the case closes.11 Until 10 then, there is the risk that someone will surface with a § 522(q) 11 objection. When there is pending litigation that alleges some 12 trigger elements of § 522(q), the prudent course is for the court 13 to decline to order a § 554 abandonment before the case closes. 14 Closure of the case, by operation of § 554(c), includes 15 16 an exemption is first claimed after a case is reopened, an objection shall be filed before the reopened case is closed. 17 Fed. R. Bankr. P. 4003(b)(3). 18 10Rule 4003(b)(1) provides: 19 20 (b)(1) Except as provided in paragraphs (2) and (3), a party in interest may file an objection to the list of 21 property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 22 days after any amendment to the list or supplemental schedules is filed, whichever is later. The court may, for 23 cause, extend the time for filing objections if, before the time to object expires, a party in interest files a request 24 for an extension. 25 Fed. R. Bankr. P. 4003(b)(1). 26 11If it were to be determined that the $189,050 exemption 27 cap applies, then it may be possible for the judgment lien creditors whose liens were avoided in this case on the premise a 28 $626,400 exemption applies to ask the court to revisit the questions of avoiding the respective liens. 1 abandonment of all correctly scheduled property not otherwise 2 administered. 11 U.S.C. § 554(c).12 3 4 B 5 Standing 6 Any party in interest has standing to make a § 522(q) 7 objection to exemptions. Fed. R. Bankr. P. 4003(a)(1). 8 In addition to the plaintiffs in the pending adversary 9 proceedings, the trustee may object, and any other party in 10 interest could object. 11 One rationale for liberal standing is that the $189,050 12 exemption cap against a $626,400 exemption claim could make 13 $437,350 available as property of the estate, which case could 14 translate to a substantially increased dividend. 15 16 C 17 Burdens 18 Shifting burdens apply in objections to exemptions in 19 California bankruptcy cases. 20 21 1 22 The applicable burden of proof for exemptions claimed under 23 California law is allocated by California statute governing 24 judgment enforcement. 25 26 12Trap for unwary: property of the estate that has not been 27 scheduled remains property of the estate, essentially forever. 11 U.S.C. § 554(d); cf., In re Dunning Bros., 410 B.R. 877 (Bankr. 28 E.D. Cal. 2009)(case reopened in 2009 to administer unscheduled property in case filed in 1936). 1 In general, the claimant of the exemption has the burden of 2 proof of entitlement to a homestead exemption. Cal. Code Civ. 3 Pro. § 703.580(b).13 4 The burden, however, is on the objector if the records of 5 the county tax assessor reflect a property tax claim of 6 homeowners exemption or disabled veterans exemption. Cal. Code 7 Civ. P. § 704.780(a)(1).14 8 9 2 10 In the context of § 522(q), after it is established there is 11 entitlement to a homestead exemption, an objector asserting the 12 § 522(q) exemption cap has the burden to prove the predicate for 13 capping the exemption. Here, that would entail proof of the 14 “fraud, deceit, or manipulation in a fiduciary capacity” required 15 by § 522(q)(1)(B)(ii). 16 17 13Cal. Code Civ. Pro. § 703.580(b) provides: 18 (b) At a hearing under this section, the exemption claimant has the burden of proof. 19 20 Cal. Code Civ. Pro. § 703.580(b). 21 14Cal. Code Civ. Pro. § 704.780(a)(1) provides: 22 (1) If the records of the county tax assessor indicate that there is a current homeowner’s exemption or disabled 23 veteran’s exemption for the dwelling claimed by the judgment debtor or the judgment debtor’s spouse, the judgment 24 creditor has the burden of proof that the dwelling is not a homestead. If the records of the county tax assessor 25 indicate that there is not a current homeowner’s exemption or disabled veteran’s exemption for the dwelling claimed by 26 the judgment debtor or the judgment debtor’s spouse, the 27 burden of proof that the dwelling is a homestead is on the person who claims that the dwelling is a homestead. 28 Cal. Code Civ. Pro. § 704.780(a)(1). 1 3 2 Finally, the § 522(q)(2) safety valve permitting an upward 3 adjustment of the cap for necessary support is in the nature of 4 an affirmative defense. 5 If the cap is determined to apply, then the exemption 6 claimant has the burden of persuasion and correlative risk of 7 nonpersuasion on the question of the “amount reasonably necessary 8 for the support of the debtor and any dependent of the debtor.” 9 11 U.S.C. § 522(q)(2). 10 The record in this case is silent about whether the Placer 11 County Tax Assessor’s records reflect the debtor has claimed a 12 homeowner’s tax exemption or a disabled veteran’s exemption. 13 14 4 15 The provision of Rule 4003(c) purporting to allocate the 16 burden of proof to exemption objectors cannot trump California’s 17 statutory allocations of burdens for state law exemptions. 18 19 a 20 Rule 4003(c), to the extent it displaces state-law burdens 21 with respect to exemptions provided by state law, offends the 22 Bankruptcy Rules Enabling Act, which forbids rules that modify 23 any substantive right. 28 U.S.C. § 2075. 24 The Supreme Court’s 2000 ruling that bankruptcy does not 25 alter the burden imposed by underlying substantive law clarified 26 that burden of proof is substantive, not procedural. Raleigh v. 27 Ill. Dept. of Revenue, 530 U.S. 15 (2000). Although the status of 28 burden of proof as procedural or substantive may have been 1 uncertain before Raleigh, after 2000 the law is: “the burden of 2 |\jproof is an essential element of the claim itself; one who 3 Hasserts a claim is entitled to the burden of proof that normally 4llcomes with it.” Raleigh, 530 U.S. at 21. 5 To the extent Rule 4003(c) modifies the burden of proof for 6 lexemptions claimed under state law, the rule violates the 7 Worohibition on modifying substantive rights. In other words, 8 liregardless of Rule 4003(c), state law exemptions control the 9 llburdens of proof governing state law exemptions. Anderson v. 10 |INolan (In re Nolan), 2022 Westlaw 327927, *2 (9th Cir. 2022), li Jaff’g 2021 Westlaw 528679, *3, (C.D. Cal. 2021), aff’g 618 B.R. 12 4860 (Bankr. C.D. Cal. 2020). 13 When in 2005 Congress imposed exemption caps on state-law 14 exemptions, it did not modify basic proof rules regarding state- 15 exemptions. 16 17 18 After Raleigh and the recognition of the infirmity of Rule 19 (c), California state-law exemptions have been construed by 20 thankruptcy courts as subject to the burdens of proof prescribed 21 state law, which generally place the burden on the person 22 claiming the exemption. E.g., In re Pashenee, 531 B.R. 834, 837 23 (Bankr. E.D. Cal. 2015); In re Tallerico, 532 B.R. 774, 780-81 24 (Bankr. E.D. Cal. 2015). Accord, e.g., Bhangoo v. Engs Comm. Fin. 25 1Co. (In re Bhangoo), 634 B.R. 80, 85 (9th Cir. BAP 2021); Diaz v. 26 ||Kosmala (In re Diaz), 547 B.R. 329, 337 (9th Cir. BAP 2016), 27 cited with approval Nolan, supra (9th Cir. 2022). 28

1 Conclusion 2 The debtor’s motion to compel abandonment of his homestead 3 property pursuant to § 554(b) is DENIED as premature because the 4 |IJdeadline under Rule 4003(b) (3) for any party in interest to 5 flobject that the $189,050 § 522(q) exemption cap applies to limit 6 debtor’s $626,400 exemption does not expire until the case 7 |lcloses. Pending litigation implicates § 522(q) (1) (B) (ii). If the 8 exemption cap does apply, then the subject property could be of 9 consequential value and benefit to the estate. 10 11 12 Dated: March 23, 2023 13

15 Wg 16 Unite na teee Bankruptcy Judge 17 18 19 20 21 22 23 24 25 26 27 28