      Case: 12-50811          Document: 00512550869              Page: 1   Date Filed: 03/05/2014




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                                    United States Court of Appeals
                                                                                             Fifth Circuit

                                                                                           FILED
                                            No. 12-50811                               March 5, 2014
                                                                                      Lyle W. Cayce
In the Matter of: MARK ALAN FROST,                                                         Clerk


                                                          Debtor
--------------------------------------------------------------------
MARY K. VIEGELAHN,

                                                          Appellee

v.

MARK ALAN FROST,

                                                          Appellant


                      Appeal from the United States District Court
                           for the Western District of Texas


Before STEWART, Chief Judge, and DeMOSS and CLEMENT, Circuit Judges.
EDITH BROWN CLEMENT, Circuit Judge:
        Under Texas law, a debtor’s homestead is permanently exempted from
the bankruptcy estate, whereas proceeds from the sale of a homestead are only
exempted for six months. Debtor Mark Alan Frost (“Frost”) challenges the
district court’s determination that proceeds from the post-certification sale of
an exempted homestead revert to the estate if not reinvested within six
months, arguing that once the homestead is permanently exempted from the
estate, any proceeds from its sale are also exempt. We affirm.
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                                  No. 12-50811
                          FACTS AND PROCEEDINGS
      When Frost filed his bankruptcy petition, his homestead in Cibolo,
Texas, was exempted from the bankruptcy estate under Texas Property Code
section 41.001(a). Subsequently, he sold the property and used some of the
funds for non-bankruptcy expenses. Under Texas law, property owners who
sell their homesteads must reinvest the proceeds in another homestead within
six months. Tex. Prop. Code § 41.001(c) (“The homestead claimant’s proceeds
of a sale of a homestead are not subject to seizure for a creditor’s claim for six
months after the date of sale.”). The Bankruptcy Court determined that,
because Frost did not reinvest the proceeds in a new homestead, he had
recharacterized the proceeds as nonexempt property; accordingly, the
Bankruptcy Court ordered that the proceeds be distributed in part to Frost’s
creditors and that a small amount of the remaining funds, approximately
$18,000, be held in trust for Frost’s future use to purchase a new homestead.
      The bankruptcy court based its conclusion on this court’s opinion in In
re Zibman, which held that proceeds from the pre-petition sale of a Texas
homestead are not permanently immune from bankruptcy creditors. 268 F.3d
298, 305 (5th Cir. 2001). Frost argues that Zibman is distinguishable because
it concerned homestead proceeds obtained prior to bankruptcy, whereas he sold
his homestead after petitioning for bankruptcy, at a time when the homestead
had already been declared exempt from the bankruptcy estate. In support,
Frost points to the text of 11 U.S.C. § 522(c), which provides: “Unless the case
is dismissed, property exempted under this section is not liable during or after
the case for any debt of the debtor that arose, or that is determined under
section 502 of this title as if such debt had arisen, before the commencement of
the case, except” as otherwise provided in § 522(c). Frost also points to the
general rule that all bankruptcy exemptions are fixed at the time of the


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                                 No. 12-50811
bankruptcy petition and do not later lose their exempt status (the “snapshot
rule”). See Zibman, 268 F.3d at 301.
      Frost appealed to the district court, arguing: (i) that Zibman is
distinguishable because it concerned homestead proceeds obtained prior to
bankruptcy, whereas he sold his homestead after petitioning for bankruptcy,
at a time when the homestead had already been declared exempt from the
bankruptcy estate; (ii) that the plain text of §§ 522(c) & (l), together with
bankruptcy’s “snapshot rule,” require that his homestead remain permanently
exempted, regardless of whether he subsequently sells the homestead and
regardless of whether he reinvests the proceeds; and (iii) that the Supreme
Court’s decision in Schwab v. Reilly, 560 U.S. 770 (2010), requires that his
proceeds be protected under federal law, preempting the Texas limitation that
proceeds be reinvested within six months.        The district court affirmed,
concluding that there was no distinction between a pre-petition and post-
petition homestead sale and that the six-month reinvestment requirement
applied in either instance, notwithstanding the terms of § 522(c).           Frost
appeals, raising the same argument.


                            STANDARD OF REVIEW
      We apply the same standard of review as the district court, reviewing
the bankruptcy judge’s factual findings for clear error and its decisions of law
de novo. In re Mercer, 246 F.3d 391, 402 (5th Cir. 2001).


                                 DISCUSSION
      The “snapshot rule” of bankruptcy law holds that all exemptions are
determined at the time the bankruptcy petition is filed, and that they do not
change due to subsequent events. Zibman, 268 F.3d at 301; see Owen v. Owen,
500 U.S. 305, 314 n.6 (1991); White v. Stump, 266 U.S. 310, 311-13 (1924) (“The
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[homestead] exemption arises when the declaration is filed, and not before. . . .
[T]he point of time which is to separate the old situation from the new in the
bankrupt’s affairs is the date when the petition is filed. . . . [T]he law discloses
a purpose ‘to fix the line of cleavage’ with special regard to the conditions
existing when the petition is filed[.]”); In re Williamson, 804 F.2d 1355, 1359
(5th Cir. 1986). Federal and Texas law both provide homestead exemptions,
and a debtor may rely on either the federal or state exemption. 11 U.S.C.
§ 522(c); Tex. Prop. Code § 41.001(a). When claiming an exemption under state
law, it is important to remember that “it is the entire state law applicable on
the filing date that is determinative.” Zibman, 268 F.3d 298, 304 (5th Cir.
2001).
      Frost claimed his exemption under Texas law, which is more generous
than the federal exemption because it exempts the homestead itself—
regardless of value—from the bankruptcy estate, while federal law limits that
exemption to “the debtor’s interest, not to exceed $22,975 in value” in his
residence. See 11 U.S.C. § 522(d)(1). But while the homestead is permanently
exempt from the bankruptcy estate, Texas law provides that the proceeds from
the sale of a homestead are only exempt for six months after the sale. Tex.
Prop. Code § 41.001(c) (“The homestead claimant’s proceeds of a sale of a
homestead are not subject to seizure for a creditor’s claim for six months after
the date of sale.”). Because Frost sold his homestead and did not reinvest the
proceeds in another homestead within this six month period, the bankruptcy
court ruled that the proceeds were no longer exempt from the estate.
      Frost argues that this ruling conflicts with federal bankruptcy law.
Section 522(c) of the Bankruptcy Code provides: “Unless the case is dismissed,
property exempted under this section is not liable during or after the case for
any debt of the debtor that arose, or that is determined under section 502 of
this title as if such debt had arisen, before the commencement of the case,”
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with certain statutory exceptions not asserted here.                 11 U.S.C. § 522(c)
(emphasis added).


       A.     11 U.S.C. §§ 522(c) & (l) and the snapshot rule
       Frost’s argument that exemptions are fixed as they appear on the date
of the bankruptcy filing is foreclosed by this court’s decision in Zibman, 268
F.3d 298 (5th Cir. 2001). In Zibman, the debtors sold their homestead three
months prior to filing bankruptcy and never reinvested the proceeds in a new
homestead. When the six month exemption expired, the trustee challenged the
exemption of those proceeds from the estate. The debtors argued that the
snapshot rule “froze the exemption as it existed on the date of filing” and that
“post petition acts or failures to act does [sic] not effect [sic] the exempt status.”
Id. at 301, 303. This court rejected debtors’ argument, holding that the six
month limit on the exemption was “an integral feature of the Texas law
‘applicable on the date of the filing’” and that “this essential element of the
exemption must continue in effect even during the pendency of a bankruptcy
case.” Id. at 301.
       Frost’s homestead was exempted from the estate—when the rest of his
assets were not—by virtue of its character as a homestead. As in Zibman, this
“essential element of the exemption must continue in effect even during the
pendency of the bankruptcy.” Id. Once Frost sold his homestead, the essential
character of the homestead changed from “homestead” to “proceeds,” placing it
under section 41.001(c)’s six month exemption. 1 Because he did not reinvest



       1 Frost disagrees with our characterization of his property, arguing that his exempted
interest is the “equity in his homestead” and that after “the asset was sold, it was the same
asset in different form – dollars, not dirt.” This argument is erroneous. The “property
exempted under this section” is the property exempted under Texas law, which clearly
differentiates between a “homestead” and “proceeds of a sale of a homestead.” They are
different types of property accompanied by different types of protection. If the form of the
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                                        No. 12-50811
those proceeds within that time period, they are removed from the protection
of Texas bankruptcy law and no longer exempt from the estate.
       Frost argues that Zibman is distinguishable because it concerned
proceeds obtained prior to filing bankruptcy, whereas he sold his homestead
after petitioning for bankruptcy, at a time when the homestead had already
been declared exempt from the estate. He argues: (i) that § 522(c) protects
“property exempted under this section” both “during and after” the
bankruptcy, and (ii) that while the proceeds in Zibman were already
temporarily exempted at the time of filing, the homestead was a permanent
exemption and placed forever outside the estate.
       This temporal distinction is insufficient to escape the holding of Zibman.
The court’s insistence that an “essential element of the exemption must
continue in effect even during the pendency of the bankruptcy case” indicates
that a change in the character of the property that eliminates an element
required for the exemption voids the exemption, even if the bankruptcy
proceedings have already begun. 2 Under this court’s precedent, (i) the sale of
the homestead voided the homestead exemption and (ii) the failure to reinvest
the proceeds within six months voided the proceeds exemption, regardless of
whether the sale occurred pre- or post-petition.



homestead—house or cash—was immaterial, the Texas statute would not differentiate
between the two.
       2 This position is also embraced by the Ninth Circuit. See In re Jacobson, 676 F.3d

1193 (9th Cir. 2012) (holding debtor lost exemption as to proceeds of postpetition sale of
homestead property when they were not reinvested in a new homestead within six months
pursuant to California law); see also In re Zavala, 366 B.R. 643 (Bankr. W.D. Tex. 2007); 3
Norton Bankr. L. & Prac. 3d § 56:9 & n.6 (stating that “[o]nce property has been properly
exempted it is no longer property of the estate and its transformation into a nonexempt type
of property does not enable the trustee to recover it . . . [but] the exemption may be lost if the
proceeds are not reinvested within the limits required by the exemption,” while noting that
the Ninth Circuit’s holding in Jacobson “is questionable because the estate’s rights in assets
should be determined as of the filing of the petition and at that time, the six month period
had not expired”).
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                                 No. 12-50811
      This interpretation of § 522(c) is in accordance with Texas law and the
decisions of this court. In In re England¸ this court noted that “[t]he object of
the proceeds exemption statute was solely to allow the claimant to invest the
proceeds in another homestead, not to protect the proceeds, in and of
themselves.” 975 F.2d 1168, 1174-75 (5th Cir. 1992). It further stated that it
is “[o]nly during the six months following the sale of a homestead when a
claimant has not acquired another homestead do claimants have any protected
rights in homestead sale proceeds.” Id. at 1174 (emphasis added). Once a new
homestead is purchased—even if the six month exemption has not expired—
any surplus proceeds from the sale lose their exempt status and can be used to
satisfy claims of the estate. Id.; In re Davis, 170 F.3d 475, 483 n.10 (5th Cir.
1999) (en banc) (“Even during this six month window, if the debtor purchases
a new homestead any remaining proceeds from the sale of the first homestead
are instantly rendered non-exempt.”). This is because once a new homestead
has been purchased, the funds become proceeds from the sale of a former
homestead, which fall outside the protection of the Texas statue. If exempted
funds can lose their statutorily-mandated exempt status within the six month
window because they are transformed into proceeds of a former homestead,
then so too can a homestead lose its exemption when it becomes a “former
homestead” or “homestead proceeds.”
      Finally, this interpretation gives effect to both the fact that the
homestead exemption is in place at the petition filing date and that the state’s
law remains equally enforceable with regard to those in bankruptcy and non-
bankruptcy.    See Owen, 500 U.S. at 308 (“Nothing in subsection (b) (or
elsewhere in the Code) limits a State’s power to restrict the scope of its
exemptions; indeed, it could theoretically accord no exemptions at all.”).
Reading the statute to exempt property that would not be protected by state
law “limits a State’s power to restrict the scope of its exemptions.” To rule
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                                     No. 12-50811
otherwise would allow a debtor-in-bankruptcy to obtain the liquidity of its
homestead at a much earlier date—and without the risk of exposing itself to
creditors—than a debtor who had not filed.
       Frost claims his position finds support in the First and Eleventh
Circuits. In In re Cunningham, the First Circuit rejected the estate’s argument
that the voluntary post-petition sale of the debtor’s homestead rendered the
homestead proceeds available to satisfy pre-petition debts. 513 F.3d 318, 323-
24 (1st Cir. 2008). Citing the plain language of § 522(c), that court held that
property exempted on the date of filing is “permanently immuniz[ed]” and
withdrawn from the state, “unless the case is dismissed.” Id. Similarly, in In
re Gamble, the debtors claimed $10,800 of equity in property as exempt
property under the Georgia statute, whose “exemptions are identical to those
found in the federal bankruptcy code, except that Georgia has lowered the caps
on certain values that the debtor may exempt.” 168 F.3d 442, 444 (11th Cir.
1999). The debtors sold the property for a profit of $6,731.22. The Eleventh
Circuit ruled the surplus proceeds exempt, holding that “[o]nce the property is
removed from the estate through exemption, the debtor may use it as his own.”
Id.    But unlike the Texas exemption in this case—which exempts the
homestead property itself as an interest in real property without a monetary
limit 3—the Massachusetts statute exempts “an estate of homestead to the
extent of $300,000,” 4 while the Georgia statute exempts “the debtor’s aggregate
interest” in its residence, up to $21,500. 5 So while the debtor’s interest in those
cases remained the same—a monetized interest in equity—Frost’s interest in
his homestead changed from an unconditionally exempted interest in the real



       3 See England, 975 F.2d at 172 n.7 (homestead interests exist in real property, and
the proceeds from the sale are personal property).
       4 Cunningham, 513 F.3d at 321 (quoting Mass. Gen. Laws ch. 188, § 1).
       5 Ga. Code Ann. § 44-13-100(a)(1).

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property itself to a conditionally exempted interest in the monetized proceeds
from the sale of that property. Once the conditional exemption expired—as it
did in Zibman—Frost lost his right to withhold the sale proceeds from the
estate.
       Adopting Frost’s argument would require rejecting this court’s
determination in Zibman that § 522(c) does not prevent exempt property from
losing its exempt status.          If § 522(c) requires strict enforcement of the
“snapshot rule” such that property exempted at the moment of filing can never
be liable—regardless of restrictions placed on that exemption by state law or a
change in the essential character of the property—then the proceeds from the
sale in Zibman would have been exempted indefinitely, despite the six month
limitation on that exception. Frost’s reading of the statute is in conflict with
Zibman and cannot be accepted.


       B.     Schwab v. Reilly
       Even if Zibman were not determinative, Frost’s argument that Schwab
v. Reilly requires the conclusion that §§ 522(c) & (l) protect his monetary
interest in the homestead—and thereby preempts Texas’s limitation on
exempting his property 6—is without merit. 560 U.S. 770 (2010). In Schwab,
the debtor (“Reilly”) claimed exemptions on certain assets under §§ 522(b) &




       6  See, e.g., In re Cunningham, 513 F.3d 318 (1st Cir. 2008) (holding that the proceeds
from the post-petition sale of the debtor’s homestead retained the exempt status of the home,
and that Massachusetts’ contrary provision was preempted); In re Weinstein, 164 F.3d 677
(1st Cir. 1999) (holding the Bankruptcy Code preempted the Massachusetts Homestead Act’s
exceptions for preexisting liens and prior contracted debts); cf. In re Davis, 170 F.3d 475
(Fifth Circuit held that the Bankruptcy Code’s exceptions to the homestead exemption did
not impliedly preempt Texas law and subject the debtor’s homestead to turnover and sale by
the estate).

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                                        No. 12-50811
(d). 7 Reilly listed the exemptions on the Schedule C form and claimed the
statutory maximum value on those assets. Schwab did not object. When an
appraisal of the listed assets revealed that they were worth more than the
statutory maximum exemption, Schwab moved to auction off the equipment to
satisfy the obligations of the estate. Reilly argued that the property claimed
as exempt on Schedule C was the asset itself—not the statutorily mandated
maximum value of the exemption—and that by failing to object Schwab had
waived its right to challenge that exemption. Schwab argued that Schedule C
exempted only the value assigned to a debtor’s interest in the property, not the
entire value of the asset itself. The Supreme Court ruled for Schwab, stating
that the exemption applied to the “debtor’s ‘interest’—up to a specified dollar
amount—in the assets described in the category, not [to] the assets
themselves.” Id. at 782.
      Frost argues that the Schwab case “focuses on the ‘exempt is exempt’
language of § 522(l) by frequently referring to Schedule C valuations as
authority for fixing the value of an exemption without qualifying reference to
state or federal exemptions.” Because Schwab holds that the dollar value
listed on Schedule C functioned to define the rights of the debtor, “then it must
also (favorably or unfavorably) define the rights of her creditors.” As applied
to the facts in this case, Frost argues that because he “claimed as exempt the



      7   11 U.S.C. §§ 522(d)(5)-(6) provide:
               The following property maybe be exempted under subsection (b)(2) of
               this section:
                                                 ***
               (5)     The debtor’s aggregate interest in any property, not to exceed in
                       value $1,225 plus up to $11,500 of any unused amount of the
                       exemption provided under paragraph (1) of this subsection.
               (6)     The debtor’s aggregate interest, not to exceed $2,300 in value, in
                       any implements, professional books, or tools, of the trade of the
                       debtor or the trade of a dependent of the debtor.
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                                    No. 12-50811
full amount of equity in his homestead – that equity was exempt as of the filing
and under the logic in Schwab cannot become ‘unexempt’ be it ‘dirt or
dollars’[.]”
           Frost’s reliance on Schwab is misplaced. The issue is not that Schwab
did not distinguish between federal or state exemptions—there was no state
exemption in that case—but rather that the “property exempted” under the
statute was fundamentally different in nature.             In Schwab, the federal
bankruptcy exemption allowed a debtor to claim an interest in the property up
to a certain dollar amount. Because the “property exempted” in that case was
a monetary interest in a certain category of property—“not [in] the assets
themselves”—it makes sense that the debtor’s interest would be limited to the
value of his claimed exemption and bound by its Schedule C representations.
But the property in this case—i.e., the “property exempted under this
section”—is exempted as an interest in the real property itself, with no
limitation on its value. See England, 975 F.2d at 1172 n.7 (homestead interests
exist in real property, and the proceeds from the sale are personal property).
The debtor in Schwab was entitled to an exemption in the amount listed in
Schedule C because the exemptions in § 522(d) are defined monetarily. By
contrast, the value of Frost’s homestead is immaterial to whether or not he is
entitled to an exemption.        More importantly, it is the land itself—not its
monetary value—that is protected under Texas law and “exempted under this
section.” 8 The rationale of Schwab simply does not apply to this case.


                                    CONCLUSION
           For the reasons stated, we AFFIRM the decision of the district court.



       8This also distinguishes this case from Cunningham, 513 F.3d 318, and Gamble, 168
F.3d 442, discussed supra section A.
                                          11
