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In re Weeden
NOT FOR PUBLICATION
Argued and Submitted at Sacramento, California: May 20, 2005
Appeal from the United States Bankruptcy Court for the Eastern District of California. Honorable Jane Dickson McKeag, Bankruptcy Judge, Presiding. Bk. No. 96-30386.
Before: MARLAR, SMITH and PERRIS, Bankruptcy Judges.
MEMORANDUM
INTRODUCTION
In this appeal, the chapter 7 debtors seek a reversal of the bankruptcy court's order sustaining the objections of two judgment creditors to the debtors' amended exemption claim in real property. The debtors had already stipulated to a $75, 000 homestead exemption in their personal residence, and the bankruptcy court held that allowing a different exemption in another parcel of real property would prejudice the creditors. Because the amended exemption claim was precluded by judicial doctrines, as well as being prejudicial, we AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
FACTS
Nancy Rowland-Wong (" Rowland-Wong") and Richard Burton (" Burton) are judgment creditors of debtor Larry Weeden (" Weeden"). They held prepetition liens on his real property in the amounts of $135, 394.30 and $5, 0230, respectively.
Larry and Barbara Weeden (" Debtors") filed a chapter 7 petition in August 1996. In their Schedule C, Debtors claimed an exemption for real property located at 16404 Greenhorn, Grass Valley, California (the " Greenhorn Property").
In October 1996, Debtors filed amended Schedules A and C. Schedule A listed a fee simple interest in 11305 Tracy Drive, Grass Valley, California (the " Tracy Property"), valued at $80, 000, and encumbered by secured claims totaling $270, 513. Debtors' Amended Schedule A also listed a fee simple interest in 13382 Curtis Lane, Grass Valley, California (the " Curtis Property"), valued at $110, 000, and encumbered by secured claims totaling $298, 739.
In their amended Schedule C, Debtors claimed an exemption in the Tracy Property, but left blank the columns for " Specify Law Providing Each Exemption" and " Value of Claimed Exemption." No objections were filed to the exemption at that time.
The trustee filed a report of No Distribution on October 4, 1996. In November 1996, Debtors received a discharge, and the case was closed in April 1998.
In the course of an attempted refinancing, Debtors learned that both judgment liens remained on the Tracy and Curtis Properties. On February 12, 2003, almost seven years after Debtors received their discharge, Debtors reopened their bankruptcy case. In April 2003, Debtors moved to avoid the liens of Rowland-Wong and Burton on both properties. Debtors sought to avoid the lien on the Curtis Property by claiming a homestead exemption under Cal. Civ. Pro. Code § 704.730(a). Rowland-Wong and Burton objected to the motion.
Debtors' papers referred to an exemption of $75, 000 under Cal. Civ. Proc. Code § 704.730(a)(2), which provided:
Burton's objections have not been included in the excerpts of record.
Since the Curtis Property was Debtors' residence, Weeden's counsel prepared a stipulation with Rowland-Wong and Burton to avoid their liens in that property. The stipulating parties recognized Debtors' $75, 000 homestead exemption in the Curtis Property, although it was not actually claimed exempt on either Debtors' initial or amended Schedule C.
In June 2003, the parties signed the Stipulation for Order Avoiding Liens of Burton and Rowland-Wong (" Stipulation"). The stipulated order was signed by the bankruptcy court on June 30, 2003.
The hearing went forward on the motion to avoid the liens of Rowland-Wong and Burton on the Tracy Property, and the bankruptcy court orally ruled:
This [the Tracy Property] is not claimed exempt. There's no section listed, no value claimed exemptions [sic], so it's not claimed exempt to me.
. . .
That is going to be my ruling. Property is not claimed exempt. And since it's not claimed exempt, it couldn't be allowed as exempt, and 522 doesn't apply.
Tr. of Proceedings (August 13, 2003), pp. 6:6-8 and 7:18-22.
On September 29, 2003, the bankruptcy court entered an order denying Debtors' motion to avoid any liens on the Tracy Property. Debtors timely appealed, and on March 15, 2004, the panel affirmed the bankruptcy court, holding that Debtors failed to articulate a good-faith basis for the exemption in the Tracy Property and to satisfy their duty to provide schedules which were accurate and complete in adequate detail.
See Memorandum, Weeden v. Rowland-Wong et al. (In re Weeden), BAP No. EC- 03-1453 (March 15, 2004), p. 7.
Thereafter, on May 12, 2004, Debtors filed a second amended Schedule C, claiming the Tracy Property exempt in the amount of $13, 288 under Cal. Civ. Pro. Code § 703.140(b)(1). Rowland-Wong and Burton filed objections to Debtors' second amended claim.
This statute allows a debtor in bankruptcy to exempt
The bankruptcy court issued a tentative ruling, on July 13, 2004, in which it found: (1) " The stipulation, drafted by the Debtors' counsel, recites that Curtis Lane is exempt on Schedule C as the Debtors' residence and is subject to the Debtors' $75, 000 homestead exemption"; and that (2) Debtors' conduct, in seeking to correct the deficiencies in their exemption for the Tracy Property while entering into a Stipulation giving them a homestead exemption in the Curtis Property, prejudiced the creditors.
The court also gave Debtors a choice of exempting the Tracy Property in lieu of the Curtis Property, but not both, which offer Debtors refused. Following a hearing, the court therefore adopted its tentative ruling and entered judgment on July 14, 2004, sustaining the objections of Rowland-Wong and Burton. Debtors timely appealed the order.
ISSUES
1. Whether Debtors' exemption claim in the Tracy Property was barred as a matter of law.
We may affirm on any basis supported by the record, even where the issue was not expressly considered by the bankruptcy court. O'Rourke v. Seaboard Surety Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957 (9th Cir. 1989).
2. Whether the bankruptcy court clearly erred in holding that Debtors could not exempt the Tracy Property because of prejudice to Rowland-Wong and Burton.
STANDARD OF REVIEW
The panel reviews legal issues de novo and the bankruptcy court's factual findings under a clearly erroneous standard. See Arnold v. Gill (In re Arnold), 252 B.R. 778, 784 (9th Cir. BAP 2000).
Questions of contract interpretation are subject to de novo review, unless extrinsic evidence is introduced on issues such as intent, in which case the pertinent factual findings are reviewed for clear error. Captain Blythers, Inc. v. Thompson (In re Captain Blythers, Inc.), 311 B.R. 530, 534 (9th Cir. BAP 2004).
A bankruptcy court has discretion to deny debtors leave to amend their exemptions if such amendment is made in bad faith or is prejudicial to creditors. See Martinson v. Michael (In re Michael), 163 F.3d 526, 529 (9th Cir. 1998); Arnold, 252 B.R. at 784; Magallanes v. Williams (In re Magallanes), 96 B.R. 253, 256 (9th Cir. BAP 1988). The bankruptcy court's findings on prejudice or Debtors' intent are reviewed for clear error. Arnold, 252 B.R. at 784. The ultimate decision to deny leave to amend is reviewed for an abuse of discretion. See Michael, 163 F.3d at 529.
DISCUSSION
Rule 1009(a) provides that a debtor may amend a voluntary schedule " as a matter of course at any time before the case is closed." Fed.R.Bankr.P. 1009(a). " A court may, however, deny the debtors leave to amend 'on a showing of a debtor's bad faith or of prejudice to creditors.'" Michael, 163 F.3d at 529. The same standard applies in a reopened case. Goswami v. MTC Distrib. (In re Goswami), 304 B.R. 386, 393 (9th Cir. BAP 2003). Here, the closed case had been reopened to consider Debtors' lien avoidance motion.
Debtors did not initially claim a homestead exemption in either the Tracy Property or the Curtis Property. In their amended schedules filed in October 1996, Debtors attempted to claim the Tracy property exempt. Then, in order to gain Rowland-Wong's and Burton's agreement to release the liens on the Curtis Property, in 2003, Debtors represented that they were claiming their $75, 000 homestead exemption in the Curtis Property. At that time, Debtors also attempted to avoid the liens on the Tracy Property. The bankruptcy court held, however, that Debtors did not exempt the Tracy Property properly and therefore the liens could not be avoided under § 522(f)(1), which states in relevant part:
Notwithstanding any waiver of exemptions . . . the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled . . . if such lien is --
(A) a judicial lien . . . .
11 U.S.C. § 522(f)(1).
The panel affirmed the bankruptcy court, finding that Debtors had not established their entitlement to exempt the Tracy Property.
In order to remedy this " error" more than six years after the case had been closed, Debtors amended their Schedule C a second time to claim the Tracy Property as exempt, citing Cal. Civ. Pro. Code § 703.140(b)(1).
The bankruptcy court sustained Rowland-Wong's and Burton's objections to that amendment because Debtors were not entitled to utilize two different exemption schemes to exempt two different parcels. In addition, the bankruptcy court held that Debtors could not exempt the Tracy Property because Rowland-Wong and Burton were prejudiced by: (1) their reliance on Debtors' representations in the Stipulation that the Curtis Property was claimed as the exempt homestead; and (2) their costs of successfully defending the new motion as to the Tracy Property, including an appeal.
California's exemption law provides that debtors in bankruptcy may elect to exempt their residential real property under the homestead provision, Cal. Civ. Pro. Code § 704.730, or may utilize Cal. Civ. Pro. Code § 703.140(b), but not both. Section 703.140(a) provides:
(a) In a case under Title 11 of the United States Code, all of the exemptions provided by this chapter, including the homestead exemption, other than the provisions of subdivision (b) are applicable regardless of whether there is a money judgment against the debtor or whether a money judgment is being enforced by execution sale or any other procedure, but the exemptions provided by subdivision (b) may be elected in lieu of all other exemptions provided by this chapter, as follows:
(1) If a husband and wife are joined in the petition, they jointly may elect to utilize the applicable exemption provisions of this chapter other than the provisions of subdivision (b), or to utilize the applicable exemptions set forth in subdivision (b), but not both.
Cal. Civ. Proc. Code § 703.140(a) (emphasis added).
The language in California's exemption scheme, indicating that debtors who have filed for bankruptcy may elect either the regular exemptions available to all debtors or the special California exemptions available only to bankruptcy debtors, " but not both, " is intended to prevent stacking of exemptions in bankruptcy. Little v. Reaves (In re Reaves), 256 B.R. 306, 311 (9th Cir. BAP 2000), aff'd, 285 F.3d 1152 (9th Cir. 2002).
In this appeal, Debtors argue that the terms of the Stipulation did not condition the release of the liens upon Debtors' claiming the Curtis Property as their exempt homestead, nor did the Stipulation require such an amendment to their Schedule C. Since they allegedly did not make a formal exemption claim under the homestead provision of Cal. Civ. Proc. Code § 704.730 for the Curtis Property, they therefore maintain that the judgment creditors were not prejudiced and that the amended Tracy Property exemption claim was proper.
Rowland-Wong and Burton maintain that Debtors intentionally used one set of exemptions (the homestead exemption under Cal. Civ. Pro. Code § 704.730(a)(2)) to gain the Stipulation to avoid the liens against the Curtis Property, and then amended the schedules to use the other exemption (Cal. Civ. Pro. Code § 703.140(b)(1)) to claim the Tracy Property exempt as well.
A. Applicable Legal Doctrines
Before we address the factual issue of prejudice, we examine the application of two legal doctrines to the facts of this case, res judicata, or claim preclusion, and judicial estoppel.
1. Debtors Are Bound by the Stipulation
Debtors and Rowland-Wong and Burton entered into a Stipulation agreeing that Rowland-Wong and Burton would release their liens on the Curtis Property in exchange for allowing Debtors a $75, 000 homestead exemption. The bankruptcy court entered the Stipulation as a signed order.
The stipulated order in this case was final and binding. Under the doctrine of res judicata, " [a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Federated Dep't. Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981).
Moreover, the Ninth Circuit has held that " a litigant can no more repudiate a compromise agreement than he could disown any other binding contractual relationship. . . ." Crown Life Ins. Co. v. Springpark Assocs. ( Matter of Springpark Assocs .), 623 F.2d 1377, 1380 (9th Cir. 1980) (citation omitted). Here, the parties agreed to be bound by the Stipulation as an order of the court.
Debtors maintain, nonetheless, that the bankruptcy court erred in finding that the Stipulation provided that they claimed a homestead exemption under Cal. Civ. Proc. Code § 704.730 for the Curtis Property. Therefore, they argue that the exemption claim for the Tracy Property did not violate the Stipulation.
The parties do not dispute that the bankruptcy court had the authority to review its stipulated order in these proceedings. The terms of a stipulation are construed according to state law principles. See United Commercial Ins. Serv., Inc. v. Paymaster Corp., 962 F.2d 853, 857 (9th Cir. 1992). In California, the intention of contracting parties is to be ascertained from the written document, if possible. See Cal. Civ. Proc. Code § 1639. However, when the language used is ambiguous, parol evidence may be received to aid the trial court in ascertaining the true intent of the parties. Rabinowitch v. Cal. West. Gas Co., 257 Cal.App.2d 150, 156, 65 Cal.Rptr. 1, 5 (Ct. App. 1967). Thus, " [a] contract may be construed and explained by reference to surrounding circumstances under which it was made and the matters to which it relates." Id.; Cal. Civ. Code § 1647 and Cal. Civ. Proc. Code § 1860. In addition, any ambiguities in a contract are generally construed against the drafter. Captain Blythers, 311 B.R. at 536 (citing Cal. law). Finally, " one phrase of a contract should not be interpreted so as to render another phrase of the contract meaningless." C.F. Brookside, Ltd. v. Skyview Memorial Lawn Cemetery (In re Affordable Housing Dev. Corp.), 175 B.R. 324, 329-30 (9th Cir. BAP 1994).
The Stipulation stated, in relevant part:
1) The WEEDENS' residence at 13382 Curtis Lane, Grass Valley, CA was found to be exempt pursuant [to] 11 U.S.C. Sec. 522, as their residence as shown on their Schedule C, and the parties agree that its July, 1996 petition date value minus its secured debt and the priority debts listed by Debtors for past due child support, and other items and the Debtors' $75, 000.00 leaves no equity in the subject property for the liens of Creditors ROWLAND-WONG and BURTON . . .
2) Given the lack of any attachable equity in 13382 Curtis Lane, Grass Valley, CA, the parties agree and stipulate that the liens of ROWLAND-WONG, BURTON and BURTON's Assignee . . . and any other liens are avoidable by the WEEDENS . . . and each of the parties agrees that the entry of an order of this court avoiding the liens specified above . . . is appropriate and each party requests the entry of this stipulation as an order avoiding said liens.
Stipulation (June 26, 2003), p. 2 (alteration added).
Debtors maintain that the language of the Stipulation is ambiguous in that it does not clearly state that the $75, 000 deduction, in the equity calculation, is for a claimed homestead exemption under Cal. Civ. Proc. Code § 704.730(a)(2). Debtors maintain that the language could have meant that it was exempt under the Cal. Civ. Proc. Code § 703.140 provisions instead. We do not find this argument persuasive.
Debtors' reasoning is perplexing. Even if they are attempting to argue that the Curtis Property was exempted under § 703.140(b)(1), they still would not be entitled to the " wildcard" exemption under subsections (b)(1) and (b)(5), since there would be no unused amount to apply to the Tracy Property ($75, 000 exceeds $17, 425). The " wildcard" provisions of Cal. Civ. Proc. Code § § 703.140(b)(1) and (b)(5) provide:
California's homestead exemption statute sets the amount of that exemption at $75, 000 for a family unit. See Cal. Civ. Proc. Code § 704.730(a)(2). Debtors claimed a $75, 000 exemption in the Stipulation. Furthermore, Debtors had filed a declaration of homestead as to the Curtis Property, which entitled them to take advantage of the exemption under § 704.730. See Wolfson v. Watts (In re Watts), 298 F.3d 1077, 1080 (9th Cir. 2002) (prepetition recordation of declaration of homestead entitled debtors to $75, 000 homestead exemption). It would be meaningless, as Debtors urge, for them to have claimed a $75, 000 exemption yet deny the authority for such an exemption. Affordable Housing Dev. Corp., 175 B.R. at 329-30.
To the extent that the language of the Stipulation is ambiguous, the bankruptcy court properly took parole evidence by way of Rowland-Wong's attorney's declaration, in which he averred that Rowland-Wong " gave up her lien on Debtors' personal residence based on a claimed homestead exemption under [Cal. Civ. Proc. Code] § 704.730." Decl. of John D. Maxey (June 9, 2004), p. 2, ¶ 6. Also put into evidence was a June 12, 2003, letter from Debtors' attorney, which stated that Debtors were entitled to a $75, 000 exemption in their personal residence.
Moreover, even if Debtors had claimed an exemption for the Curtis Property under Cal. Civ. Proc. Code § 703.140(b)(1), they could not thereafter claim the same exemption for the Tracy Property because that statute only applies to real property " used as a residence." Id.; Toplitzky v. Hooten (In re Toplitzky), 227 B.R. 300, 304 (9th Cir. BAP 1998) (§ 703.140(b)(1) provides an exemption in regards to the debtor's residence). Debtors could not exempt the Tracy Property under that provision when California law allows only one residence to be exempted and the Stipulation and stipulated order provided that the Curtis Property was the exempted residence.
The bankruptcy court did not err, therefore, in construing the Stipulation as a binding agreement to release the Rowland-Wong and Burton liens because they impaired Debtors' $75, 000 homestead exemption in the Curtis Property. Because the homestead exemption in the Curtis Property was res judicata, Debtors were barred from claiming another exemption under a different exemption scheme for the Tracy Property.
2. Judicial Estoppel
Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position. Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001). We have explained that " [t]here are three general approaches to judicial estoppel: (1) requiring (like equitable estoppel) that the party injured by the changed position have relied on the first position; (2) merely requiring that the court have relied on, i.e. accepted, the earlier position; and (3) encompassing unseemly adversary behavior that constitutes 'playing fast and loose' with the court." An-Tze Cheng v. K & S Diversified Invs., Inc. (In re An-Tze Cheng), 308 B.R. 448, 453 (9th Cir. BAP 2004) (citation omitted). The Ninth Circuit has restricted the application of judicial estoppel to cases where the court relied on, or accepted, the party's previous inconsistent position. See Hamilton, 270 F.3d at 783.
Thus, there are three factors a court may consider in determining whether to apply the doctrine of judicial estoppel. First, a party's later position must be " clearly inconsistent" with its earlier position. Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled. A third consideration is whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. Hamilton, 270 F.3d at 782-83 (citing New Hampshire v. Maine, 532 U.S. 742, 750-51, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)).
First, Debtors clearly asserted inconsistent positions. Debtors entered into a Stipulation claiming a homestead exemption in the Curtis Property. Debtors then amended their Schedule C to claim a wild card exemption in the Tracy Property. Debtors could not " stack" or take the exemptions under Cal. Civ. Pro. Code § 703.140(b) in addition to the $75, 000 homestead exemption. See Cal. Civ. Proc. Code § 703.140(a); Little v. Reaves (In re Reaves), 285 F.3d 1152, 1156 (9th Cir. 2002). The Ninth Circuit has explained California law as follows:
A California debtor in bankruptcy must elect between two sets of exemptions under California law, one which applies to debtors generally and the other which applies to debtors in bankruptcy. CCP § 703.140(a); Farrar v. McKown (In re McKown), 203 F.3d 1188, 1189 (9th Cir.2000). The homestead exemption available to judgment debtors, CCP § 704.730, is more generous than the exemption that applies to debtors in bankruptcy, id. § 703.140(b)(1). Here, prior to filing for bankruptcy, Debtors recorded a declaration of homestead available to judgment debtors, thereby entitling Debtors to a $75, 000 homestead exemption, id. § 704.730(a), which remained effective after they filed their bankruptcy petition. . . .
Second, the bankruptcy court accepted Debtors' first position, i.e., the homestead exemption of the Curtis Property, when it approved the Stipulation.
Finally, Debtors would derive an unfair advantage if allowed to exempt two parcels of real property, and such would be an unfair detriment on Rowland-Wong and Burton because they would lose their liens on both parcels of property and become unsecured creditors.
Debtors's conduct met all three criteria generally considered in applying judicial estoppel; therefore, the doctrine of judicial estoppel prevented Debtors from claiming an exemption in the Tracy Property.
B. Prejudice to the Judgment Creditors
Rule 1009(a) states that debtors may amend their schedules " as a matter of course" at any time before the case is closed. " The rule is liberal, but is subject to some judge-made exceptions: Amendments are and should be liberally allowed at any time absent a showing of bad faith or prejudice to third parties." Arnold, 252 B.R. at 784.
" Prejudice to creditors is clearly present where they suffer an actual economic loss due to a debtor's delay in claiming his exemption." Id.
Rowland-Wong and Burton contend that they agreed to release their liens on the Curtis Property because they expected to retain their liens on the non-exempt Tracy Property. They knew that Debtors were only entitled to claim an exemption in one homestead and therefore were justified in their expectation that they would retain their liens on the Tracy Property.
Debtors contend that the terms of the Stipulation do not require, nor do they reflect the judgment creditors' understanding, that Debtors would amend Schedule C in order to claim an exemption in the Curtis Property, nor was that ever done.
As discussed above, the bankruptcy court did not err in determining that both parties understood that Debtors were purporting to claim the homestead exemption in their Curtis Property residence. In fact, Debtors stated, on p. 2 of their Motion to Avoid Judicial Liens, Determine Secured Status: " Curtis Lane was and is the debtors' residence and on July 18, 1990, the debtors filed a declaration of homestead. The debtors are entitled to an exemption of $75, 000." Moreover, the exemption amount of $75, 000 is consistent only with the homestead provisions of § 704.730. The Stipulation concerns the Curtis Property, states that the Curtis Property is Debtors' residence, and states that they are entitled to a $75, 000 homestead exemption.
The circumstances surrounding the Stipulation were that there were two properties subject to the liens of Rowland-Wong and Burton. Rowland-Wong's attorney presented declaration evidence in which he stated:
I did not agree to release the lien against the rental property [Tracy Property]. However, based on Debtors' claimed exemption, I, on behalf of Ms. Wong, agreed to release the lien on the personal residential knowing there would be no available exemption on the rental property and Ms. Wong could proceed to collect on her lien against the rental property.
Decl. of John D. Maxey, supra, p. 2, ¶ 5.
It is clear that Rowland-Wong and Burton would have acted differently in regards to the Stipulation had they known Debtors intended to claim an additional exemption in the Tracy Property.
Therefore, when Debtors amended their schedules seven years later to claim the Tracy Property as exempt, Rowland-Wong and Burton would have suffered an actual economic loss had the bankruptcy court allowed the exemption on the Tracy Property. They had already released their respective liens on the homesteaded Curtis Property, and would have had no where else to look to satisfy their judgments.
However, " 'merely showing prejudice' does not automatically trigger disallowance of an amendment: the court must balance the prejudice to the debtor of disallowing the exemption against the prejudice to third parties in allowing the exemption." Arnold, 252 B.R. at 785.
The prejudice to Rowland-Wong and Burton, had the exemption in the Tracy Property been allowed, would have been great; they would have become unsecured creditors, or else they would have had to incur additional attorneys fees in order to litigate the legality of the Stipulation. Had Debtors claimed a " wild card" exemption in the Tracy Property pursuant to § 703.140(b)(1) and (b)(5), before entering into the Stipulation, Rowland-Wong and Burton would not have agreed to allow Debtors to claim a $75, 000 homestead exemption in the Curtis Property, and the matter of the propriety of the dual exemptions would have been sorted out at that stage. The fact that Debtors never did claim a homestead exemption in the Curtis Property on Schedule C was their own failure to act. Moreover, an amended Schedule C was unnecessary since Debtors had filed a declaration of homestead in regards to the Curtis Property, asserted the homestead exemption in the negotiations for avoidance of the liens, and included the $75, 000 homestead exemption as part of the Stipulation.
On the other side of the equation, Debtors were not prejudiced by the bankruptcy court's disallowance of the claimed exemption in the Tracy Property. They obtained the release of the liens from their residence. California law allows Debtors to claim a homestead exemption in only one parcel of real property. See Cal. Civ. Pro. Code § 703.140(a)(1) and (b)(1). Debtors had already claimed a homestead exemption in the Curtis Property by virtue of the court-approved Stipulation, and enjoyed the benefits of the more generous homestead exemption. Therefore, Debtors were not prejudiced at all when the bankruptcy court disallowed their claimed exemption in the Tracy Property.
When balancing the prejudice to Debtors if the court had disallowed the exemption in the Tracy Property (none - Debtors already exempted the Curtis Property) with the prejudice to Rowland-Wong and Burton if the court had allowed the exemption in the Tracy Property (great - Rowland-Wong and Burton would have become unsecured creditors and Debtors would have gained double exemptions), it is clear that the bankruptcy court did not err in disallowing the exemption.
CONCLUSION
Debtors are unable to exempt the Tracy Property for multiple reasons, including the binding Stipulation, res judicata, and judicial estoppel. In addition, when determining whether to allow Debtors to amend their exemptions, the bankruptcy court must weigh the prejudice to the creditors if the exemption is allowed with the prejudice to Debtors if the exemption is disallowed. Since Rowland-Wong and Burton would be greatly prejudiced if Debtors were allowed to claim an exemption in the Tracy Property, and the Debtors would not be prejudiced by disallowance, the bankruptcy court did not err in sustaining Rowland-Wong and Burton's objections to Debtors' amended exemption. Therefore, the bankruptcy court's order sustaining the objections to the claimed exemption in the Tracy Property is AFFIRMED.
(a) The amount of the homestead exemption is one of the following: . . . .
(2) Seventy-five thousand dollars ($75, 000) if the judgment debtor or spouse of the judgment debtor who resides in the homestead is at the time of the attempted sale of the homestead a member of a family unit, and there is at least one member of the family unit who owns no interest in the homestead or whose only interest in the homestead is a community property interest with the judgment debtor.
Cal. Civ. Proc. Code § 704.730 (1987 & Supp. 2002). See Debtors' Motion to Avoid Judicial Liens (February 12, 2003), pp. 2:13-14; 4:25-26; 5:14-15.
(1) [t]he debtor's aggregate interest, not to exceed seventeen thousand four hundred twenty-five dollars ($17, 425) in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence . . . .
Cal. Civ. Pro. Code § 703.140(b)(1).
(1) The debtor's aggregate interest, not to exceed seventeen thousand four hundred twenty-five dollars ($17, 425) in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.. . . . (5) The debtor's aggregate interest, not to exceed in value nine hundred twenty-five dollars ($925) plus any unused amount of the exemption provided under paragraph (1), in any property.
Cal. Civ. Proc. Code § 703.140(b)(1), (b)(5) (emphasis added).
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