White v. Stump

Background

Peter Stump filed a voluntary bankruptcy petition and listed a quarter section of land where his family lived, but did not claim a homestead exemption at that time. A month after the petition, and after he was adjudged bankrupt, his wife — with his assent — executed and filed the Idaho declaration that state law requires to create a homestead. The bankruptcy trustee objected, a referee disallowed the exemption, the District Court allowed it, and the Circuit Court of Appeals agreed with the District Court before the case reached the Supreme Court.

Reasoning

The Court addressed whether a homestead claim made after a bankruptcy petition can be treated as an exemption in the bankruptcy proceeding. Relying on the bankruptcy statute’s language and prior decisions, the Court explained that the crucial moment for measuring exemptions is the date the petition is filed. The bankruptcy law makes state exemptions effective “at the time of the filing of the petition,” and several provisions show the estate and rights are fixed as of that date. Because Idaho law makes the homestead exemption arise only when a recorded declaration is filed, and the declaration here was filed after the petition, the land was not exempt when the petition was filed and therefore passed to the trustee.

Real world impact

People who file bankruptcy in states that require a recorded homestead declaration must have that declaration in place before filing to claim the exemption. Debtors who try to record a homestead after filing cannot use it to shield property in the bankruptcy, and trustees and creditors may reach property not exempt at filing.