Petition-Date Homestead Valuation Excludes Insurance Proceeds

By Alexander Beeby posted 09-19-2020 17:31

  
BANKRUPTCY BULLETIN
Contributing Editor: Christopher (C.J.) Harayda, Faegre Drinker

In Waltrip v. Sawyers (In re Sawyers), 609 B.R. 331 (BAP 8th Cir. 2019), the Eighth Circuit BAP affirmed a grant of summary judgment as not clearly erroneous when the bankruptcy court held that a judicial lien could be avoided based on the value of the debtor’s homestead as of the petition date and that the value of the property should not be enhanced by the amount of insurance proceeds received by the debtor due to destruction by a prepetition fire.

The appellant had a judicial lien on the debtor's primary place of residence prepetition for more than $250,000. The residence was damaged in a prepetition fire. The debtor received insurance proceeds of $132,000 to repair the damage to her residence. The appellant did not have a lien in the insurance proceeds. As of the petition date, the value of the home was estimated to be $3,000-6,000. The debtor claimed her homestead exemption in the amount of $15,000 under Missouri statute, and the Chapter 7 trustee abandoned all of the debtor's assets. After the debtor received her discharge and the case was closed, the appellant instituted a sheriff's sale on the debtors residence. The debtor reopened the case to avoid the debtor's lien under 11 U.S.C § 522(f) to the extent it limited her exemptions. The bankruptcy court granted summary judgment in favor of the debtor, and the lienholder appealed.

The appellant argued to the BAP that the valuation of the debtor's residence should have included the insurance proceeds she received. The BAP found the appellant's argument unavailing and the cases he relied on distinguishable and inapplicable. The BAP agreed with the bankruptcy court that the proper time to value the residence was as of the petition date, without inclusion of the insurance proceeds and that avoiding the lien would not result in a windfall to the debtor.
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