A California bankruptcy judge recently ruled on a series of motions in a Chapter 7 case, including an effort by the debtors to have their residence declared exempt under California law and a motion by the court-appointed trustee to compel them to turn the property over to him. The trustee alleged that the debtors undervalued the residence in their original schedules, that they did not heed his warnings about the type of exemption they were claiming, and that the amended schedules they filed were not filed in good faith. He sought turnover of the property because he had already entered into a contract to sell it. The court ruled in the trustee’s favor. In re Gutierrez, No. 12-60444, mem. decision (E.D. Cal., Jan. 29, 2014).
The debtors filed a Chapter 7 bankruptcy petition in December 2012. Their Schedule A listed a residence in Visalia, California valued at $127,748, with two mortgages totaling $115,050. They claimed the equity of $12,698 as exempt, using California’s “wild card” exemption defined in Cal. Civ. Pro. Code § 703.140(b)(5). They claimed five other assets as exempt, with a total claimed value of $17,927. At the creditors’ meeting in January 2013, the trustee told the debtors that the residence had more equity than they claimed and was therefore more than they could claim under the “wild card” exemption. He “implicitly suggested” that they look at other exemptions allowed by California law. Gutierrez, mem. dec. at 3.
About a week later, the court issued a notice to creditors to file proofs of claim, meaning it anticipated the sale of assets by the trustee. The court entered a discharge without objection that April. The trustee moved for leave to hire a real estate broker in July. The debtors’ only response was to file a motion to convert the case to Chapter 13. The court granted the motion for sale. It authorized the trustee to sell the residence for $165,000, significantly more than the value claimed by the debtors. It denied the debtors’ motion.