Certification from the United States Bankruptcy Court for the Western District of Washington in In the Matter of the Bankruptcy Petition of Larry Charles Wieber et al. , Debtors
Argued: October 14, 2014.
Steven C. Hathaway (of Law Offices of Steven C. Hathaway PC ), for debtors.
Bruce J. Borrus, Gavin W. Skok, and James H. Wendell (of Riddell Williams PS ), for creditor.
AUTHOR: Justice Debra L. Stephens. WE CONCUR: Chief Justice Barbara A. Madsen, Justice Charles W. Johnson, Justice Susan Owens, Justice Mary E. Fairhurst, Justice Steven C. González, Justice Sheryl Gordon McCloud, Justice Mary I. Yu. AUTHOR: Justice Charles K. Wiggins.
[182 Wn.2d 920] ¶ 1 The United States Bankruptcy Court for the Western District of Washington has asked us whether Washington's homestead exemption law, chapter 6.13 RCW, applies extraterritorially to real property located in other states. We answer this certified question in the negative. We hold that Washington's homestead exemption law does not apply to real property outside of Washington.
FACTS AND PROCEDURAL HISTORY
¶ 2 The relevant facts in this case are undisputed. Debtors Larry and Rose Wieber filed for chapter 13 bankruptcy relief in the United States Bankruptcy Court for the Western [182 Wn.2d 921] District of Washington. After abandoning any claim of homestead to their residence in Blaine, Washington--in which
they hold no equity--the Wiebers claimed a homestead exemption for real property located in Ketchikan, Alaska.
¶ 3 Creditor Bruce Kiessling objected to the Wiebers' homestead exemption, arguing that Washington's homestead exemption law has never been interpreted to apply extraterritorially. The bankruptcy court found that the Wiebers were domiciled in Washington, so Washington law governs the exemption question. Following a hearing, the bankruptcy court concluded that Washington's homestead exemption law does not expressly indicate whether its terms apply to property located outside of Washington. To resolve this issue, the court agreed to certify the following question to this court: " Does the Washington homestead exemption law, RCW 6.13.010-.240, apply extra-territorially to real property located in other states?" Order Certifying Question to Wash. State Supreme Ct. at 3.
¶ 4 At the outset, we recognize that our interpretation of the homestead exemption law is not limited to its application in bankruptcy proceedings. The homestead exemption arises in proceedings involving probate, foreclosure, family law, and the general enforcement of judgments. However, because this case arose through the bankruptcy court, it is important to understand how homestead exemption laws relate to federal bankruptcy law.
1. Homestead Exemptions in Bankruptcy Court
¶ 5 Bankruptcy filings create a bankruptcy estate consisting of the debtor's legal or equitable interests in property. 11 U.S.C. § 541(a). Debtors may claim certain property as exempt from the bankruptcy estate. 11 U.S.C. § 522(b)(1). They may choose between federal exemptions [182 Wn.2d 922] under 11 U.S.C. § 522(d) and exemptions provided under state law. 11 U.S.C. § 522(b)(2). If a debtor elects to assert a state's exemption, the bankruptcy court looks to the forum state's law to determine the applicability of the exemption.
¶ 6 Bankruptcy courts throughout the country have considered the extraterritorial effect of state homestead exemption laws. The majority of jurisdictions decline extraterritorial application of the homestead exemption to property located in another state. See, e.g., William H. Brown, Lawrence R. Ahern III & Nancy F. MacLean, Bankr. Exemption Manual § 4:7, at 95 (2011-2012 ed.) (" [T]he majority of courts have held that one state cannot assert extraterritorial jurisdiction over property in other states." ); Dale Joseph Gilsinger, Extraterritorial Application of State's Homestead Exemption Pursuant to Bankruptcy Code § 522, 47 A.L.R. Fed.2d 335, § 2, at 343 (2010) (" State courts have repeatedly, and almost uniformly, held that a state's homestead exemption only extends to property located within that state." ); In re Sipka, 149 B.R. 181, 182 (D. Kan. 1992) (believing the " majority rule is correct" and declining extraterritorial application of Kansas's homestead law).
¶ 7 In re Capps is illustrative of the majority rule. 438 B.R. 668 (Bankr. D. Idaho 2010). There, the court held that Idaho's homestead exemption law did not apply extraterritorially to property located outside of Idaho. Id. at 672. Noting that Idaho state courts had not addressed the issue, the bankruptcy court relied on the public policy discouraging " 'exemption shopping,'" as recognized by the bankruptcy code and Idaho's public policy protecting creditors' expectations. Id. While acknowledging that some courts have allowed extraterritorial application of state homestead exemptions where the statutes do not expressly prohibit it, the trial court in Capps reaffirmed its previous holding in In re Halpin, 94 I.B.C.R. 197, 198, 1994 WL 594199 (Bankr. D. Idaho) that Idaho's exemption law does not allow debtors to claim a homestead in another state. Id. at 672-73 (distinguishing In re Arrol, 170 F.3d 934 (9th Cir. 1999)).
[182 Wn.2d 923] ¶ 8 The Wiebers rely on the handful of decisions holding that a state's homestead exemption law may apply extraterritorially to property located outside of that state if the law does not expressly exclude such application. Arrol, 170 F.3d 934 (applying California's homestead exemption law to a Michigan
home); In re Drenttel, 403 F.3d 611 (8th Cir. 2005) (applying Minnesota's homestead exemption law to an Arizona home); In re Stratton, 269 B.R. 716 (Bankr. D. Or. 2001) (relying on Arrol ; applying Oregon's homestead exemption law to a California home). The cases that support extraterritorial application can be categorized in two groups: those based on policy and those based on comparing homestead exemptions with similar laws that are expressly limited to state residents.
¶ 9 Some courts reason that public policy supports extraterritorial application of a state's homestead law. The most prominent of these policy-based cases is Arrol, in which the court held that California's homestead exemption statute permitted debtors to claim an exemption for a homestead located in Michigan. 170 F.3d at 936. First, the court opined that the purpose of California's homestead exemption exists independently from state boundaries, " 'provid[ing] a place for the family and its surviving members, where they may reside and enjoy the comforts of a home.'" Id. (alteration in original) (quoting Strangman v. Duke, 140 Cal.App.2d 185, 190, 295 P.2d 12 (1956)). The court further reasoned that the homestead exemption law is similar in policy to a California automobile exemption law, which had been applied extraterritorially. Id. Lastly, the court said it ...