UNITED STATES BANKRUPTCY COURT
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NORTHERN DISTRICT OF CALIFORNIA
JAMES KRISTOFFERSON, No. 1-90-01083
Memorandum re Homestead Exemption
While this case was in Chapter 11, debtor James Kristofferson entered into a court-approved
contract to sell his real property at 2891 Bristol Road, Kenwood, to one Jane Gill. Pursuant to the
agreement, Gill moved into the property before escrow closed. Before escrow could close, Gill was
murdered. The escrow did not close and the property was lost to foreclosure. However, $194,000.00
was recovered from Gill's estate on account of her breach of the contract of sale. The case having been
converted to Chapter 7, the trustee objects to Kristofferson's claim of a $45,000.00 homestead
exemption in this money pursuant to California Code of Civil Procedure § 704.710 et seq
While exemptions are generally fixed as of the date of the initial bankruptcy filing, state
homestead law can make postpetition events relevant. See, e.g.
, In re Golden
, 789 F.2d 698 (9th
Cir.1985). This dispute is governed by California Code of Civil Procedure § 704.720(b), which
provides, in pertinent part:
If a homestead is sold under this division or is damaged or
destroyed . . . the proceeds of sale or of insurance or other
indemnification for damage or destruction of the homestead
. . . are exempt . . . .
The factual record now before the court does not establish why the property was lost to
foreclosure. If Gill was murdered in the property, and as a result the property could not be resold, then
the money is clearly indemnification for damage and the exemption must be allowed. See Haaland v.
Corporate Management, Inc.
, 172 B.R. 74 (S.D.Cal.1989)[proceeds of malpractice claim for loss of
homestead may be exempted as indemnification for destruction of homestead]. Homestead laws are to
be liberally interpreted in favor of the debtor. In re Pladson
, 35 F.3d 462, 465 (9th
The issue is a little more problematical if Gill's death did not cause the property to decrease in
value. The trustee argues that there was no forced sale, so § 704.720 does not apply. However, a sale
by a debtor in possession pursuant to the Bankruptcy Code is deemed to be the equivalent of a forced
sale under state law. In re Cole
, 93 B.R. 707, 709 (9th
Cir.BAP 1988). The funds recovered from Gill's
probate estate were proceeds of such a sale, and are accordingly exempt. Failure to honor the
homestead would give the estate a windfall at the debtor's expense, since it would allow the estate to
keep all of the money from the breach of contract claim when the debtor would have been entitled to the
first $45,000.00 if the contract had been performed.
For the foregoing reasons, the trustee's objection will be overruled and the exemption allowed.
Counsel for the debtor shall submit an appropriate form of order.
Dated: November 1, 1999 ____________________________
United States Bankruptcy