Gregory Hawk v. Eva Engelhart ( 2017 )

Case: 16-20641 Document: 00514080518 Page: 1 Date Filed: 07/19/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 16-20641
FILED
July 19, 2017
Lyle W. Cayce
In the Matter of: GREGORY D. HAWK; MARCIE H. HAWK, Clerk
Debtors.
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GREGORY D. HAWK,
Appellant,
v.
EVA S. ENGELHART, Chapter 7 Trustee,
Appellee.
Appeal from the United States District Court
for the Southern District of Texas
Before STEWART, Chief Judge, and WIENER and PRADO, Circuit Judges.
EDWARD C. PRADO, Circuit Judge:
After filing for Chapter 7 bankruptcy, Gregory and Marcie Hawk claimed
an exemption for funds held in an individual retirement account (“IRA”). The
Hawks sought to exempt the funds from the bankruptcy estate because tax-
exempt or tax-deferred assets held in a qualifying retirement account are
generally exempt from creditors’ claims under Texas law. However, the Hawks
subsequently withdrew the funds from the IRA and did not roll them over into
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another IRA. Because Texas law provides that funds withdrawn from a
retirement account remain exempt only if rolled over into another retirement
account within sixty days, the bankruptcy court held that the funds had lost
their exempt status and ordered that the Hawks turn over the funds to the
Trustee, Eva Engelhart. The district court upheld the bankruptcy court’s
decision on appeal. We AFFIRM.
I. BACKGROUND
On December 15, 2013, the Hawks filed a voluntary bankruptcy petition
under Chapter 7 of the Bankruptcy Code. Approximately one month later, the
Hawks filed their schedules of assets, which claimed an exemption for funds
held in an IRA managed by NFP Securities, Inc. The Hawks claimed that the
IRA funds were exempt from creditors’ claims under Texas Property Code
§ 42.0021 and were therefore excluded from the property of the bankruptcy
estate under 11 U.S.C. § 522(b). The meeting of creditors was held on March
28, 2014, giving the parties in interest until April 28, 2014, to object to the
Hawks’ claimed exemptions. See Fed. R. Bankr. P. 4003(b)(1). No party in
interest objected to the IRA exemption during that time. On April 3, 2014, the
Trustee filed a report declaring that the estate had no assets available for
distribution to the Hawks’ creditors and proposing to abandon all nonexempt
assets. In May 2014, however, one of the Hawks’ creditors, Res-TX One, timely
filed an adversary proceeding objecting to the Hawks’ discharge.
Meanwhile, between December 11, 2013, and July 14, 2014, the Hawks
withdrew all of the funds from the IRA and used most of those funds to pay for
living and other expenses. The funds were never rolled over into another
retirement account. When Res-TX One deposed Mr. Hawk in November 2014,
Mr. Hawk stated that approximately $30,000 of the liquidated IRA funds
remained in his possession and that the funds were being held “in a shoebox.”
The Trustee first learned about the liquidated IRA funds from Mr. Hawk’s
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deposition and subsequently demanded that the Hawks give the funds to the
estate. After the Hawks refused to do so, the Trustee filed a motion with the
bankruptcy court seeking to compel the Hawks to turn over the funds.
The bankruptcy court held an evidentiary hearing and then ordered the
Hawks to turn over the funds that were withdrawn from the IRA ($133,434.64
in total). The bankruptcy court concluded that the funds “lost their exempt
status” under Texas law because the Hawks “did not roll them over to another
individual retirement account within 60 days.” The Hawks appealed to the
district court, which affirmed the bankruptcy court’s decision. This appeal
followed.
II. STANDARD OF REVIEW
As a “second review court,” “[o]ur review is properly focused on the
actions of the bankruptcy court.” In re Age Ref., Inc., 801 F.3d 530, 538 (5th
Cir. 2015) (quoting In re T-H New Orleans Ltd. P’ship, 116 F.3d 790, 796 (5th
Cir. 1997)). “We apply the same standard of review to the bankruptcy court’s
findings of fact and conclusions of law as applied by the district court.” In re
Pratt, 524 F.3d 580, 584 (5th Cir. 2008). “Determination whether an exemption
from the bankruptcy estate exists is a question of law, which we review de
novo.” In re Zibman, 268 F.3d 298, 301 (5th Cir. 2001). “Although we may
‘benefit from the district court’s analysis of the issues presented, the amount
of persuasive weight, if any, to be accorded the district court’s conclusions is
entirely subject to our discretion.’” In re Age Ref., 801 F.3d at 538 (quoting In
re CPDC, Inc., 337 F.3d 436, 441 (5th Cir. 2003)).
III. DISCUSSION
Under 11 U.S.C. § 541(a), the commencement of a bankruptcy case—
whether under Chapter 7 or Chapter 13 of the Bankruptcy Code—creates a
bankruptcy estate comprising, among other things, “all legal or equitable
interests of the debtor in property as of the commencement of the case.” The
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debtor may then remove certain types of property from the estate by electing
to take advantage of either the exemptions described in federal law or those
described in state law. 11 U.S.C. § 522(b). To claim these exemptions, the
debtor must file a list of property claimed as exempt on the schedule of assets.
11 U.S.C. § 522(l); Fed. R. Bankr. P. 4003(a). A party in interest may then “file
an objection to the list of property claimed as exempt within 30 days after the
meeting of creditors . . . or within 30 days after any amendment to the list or
supplemental schedules is filed, whichever is later.” Fed. R. Bankr. P.
4003(b)(1). “Unless a party in interest objects, the property claimed as exempt
on such list is exempt.” 11 U.S.C. § 522(l). “Anything properly exempted passes
through bankruptcy; the rest goes to the creditors.” Payne v. Wood, 775 F.2d
202, 204 (7th Cir. 1985).
This Court has not previously addressed whether a Texas debtor is
entitled to an exemption when he or she withdraws funds from a retirement
account and does not deposit the funds into another retirement account within
sixty days. However, the parties agree that this Court’s case law regarding
Texas homesteads is instructive. Indeed, there are clear parallels between the
Texas statutes governing retirement accounts and those governing
homesteads. Texas Property Code § 42.0021(a) states that “a person’s right to
the assets held in . . . an individual retirement account . . . is exempt from
attachment, execution, and seizure for the satisfaction of debts to the extent
the . . . account is exempt from federal income tax, or to the extent federal
income tax on the person’s interest is deferred until actual payment of benefits
to the person.” Section 42.0021(c) then provides that amounts distributed from
an exempt retirement account “are not subject to seizure for a creditor’s claim
for 60 days after the date of distribution if the amounts qualify as a nontaxable
rollover contribution.” Similarly, Texas Property Code § 41.001(a) indicates
that a homestead is “exempt from seizure for the claims of creditors except for
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encumbrances properly fixed on homestead property.” Section 41.001(c) goes
on to explain that the “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 Hawks make two primary arguments on appeal. First, they contend
that the lower courts improperly applied the so-called “snapshot rule,” which
dictates that exemptions must be determined based on the state law in effect
when the petition is filed. Second, the Hawks seek to distinguish our previous
decision in In re Frost, 744 F.3d 384, 387 (5th Cir. 2014), which held that the
proceeds of a homestead sale were not exempt where a debtor sold his
homestead after filing for bankruptcy and did not reinvest the proceeds in
another homestead within six months. The Hawks argue that Frost’s holding
applies only in Chapter 13 bankruptcy cases, not in Chapter 7 proceedings like
the case at bar.
A. The Snapshot Rule
According to the Hawks’ interpretation of the snapshot rule, the property
of the estate is permanently fixed “based upon the facts and applicable
exemption law that existed on the petition date.” Alternatively, the Hawks
argue that the facts and law are permanently fixed when the time for making
objections passes. In support, they point to 11 U.S.C. § 522(c), which states
that, as a general rule, “property exempted under this section is not liable
during or after the case for any debt of the debtor that arose . . . before the
commencement of the case.” The Hawks note that they claimed an exemption
for the IRA funds and that no party in interest objected to the exemption within
thirty days after the meeting of creditors. Thus, they contend that the snapshot
rule and § 522(c) prohibited the bankruptcy court from later determining that
the funds were no longer exempt.
In White v. Stump, a debtor filed for bankruptcy, and his wife later
sought a homestead exemption for the land where the debtor and his family
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resided. 266 U.S. 310, 310–11 (1924). The Supreme Court noted that “[t]he
laws of the state of Idaho, where the land is situate, provide for a homestead
exemption, but only where a declaration that the land is both occupied and
claimed as a homestead is made and filed.” Id. at 311. Until the landowner
filed such a declaration, state law provided that “the land is subject to
execution and attachment like other land; and where a levy is effected while
the land is in that condition the subsequent making and filing of a declaration
neither avoids the levy nor prevents a sale under it.” Id. The Supreme Court
went on to explain that “the state laws existing when the petition is filed [are]
the measure of the right to exemptions.” Id. at 312. Moreover, the date of filing
is the point at which “the status and rights of the bankrupt, the creditors and
the trustee . . . are fixed.” Id. at 313. Because the land “was subject to levy and
sale” under state law when the debtor filed his bankruptcy petition, the
Supreme Court held that he was not entitled to a homestead exemption. Id. at
314. This approach of looking to the state law in effect at the time of filing came
to be known as the snapshot rule. See In re Zibman, 268 F.3d at 303.
Two decades later, the Supreme Court expanded on the snapshot rule in
Myers v. Matley, 318 U.S. 622, 628 (1943). In that case, a debtor consented to
an involuntary bankruptcy petition filed against him. Id. at 623. A month later,
the debtor’s wife filed a declaration with a Nevada county recorder claiming a
tract of land listed in the debtor’s bankruptcy schedules as a homestead and
then filed a petition with the bankruptcy court claiming the land as exempt.
Id. at 623–24. The Supreme Court first characterized White as holding that
because “the claim of exemption was not perfected until after the petition was
filed, it was ineffective as against the trustee, as it would have been against a
creditor then having a levy on the property.” Id. at 626. In contrast to the state
law applicable in White, however, Nevada law provided that a debtor was
entitled to an exemption so long as a homestead declaration was filed “at any
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time before actual sale under execution.” Id. at 626–27. The Supreme Court
explained that “under the law of Nevada, the right to make and record the
necessary declaration of homestead existed in the bankrupt at the date of filing
the petition, as it would have existed in case a levy had been made upon the
property.” Id. at 628 (emphasis added). “The assertion of that right before
actual sale in accordance with State law did not change the relative status of
the claimant and the trustee subsequent to the filing of the petition.” Id. Thus,
the Supreme Court concluded that the debtor’s spouse was entitled to the
homestead exemption. Id.In recent years, the Fifth Circuit has been guided by Myers and White in
assessing the applicability of Texas’s homestead proceeds exemption. See In re
Zibman, 268 F.3d at 303–04. In Zibman, the debtors sold their Texas
homestead just over two months before filing for Chapter 7 bankruptcy and did
not reinvest the proceeds in another homestead within six months of the sale.
Id. at 300–01. We observed that under Myers and White, “the law and facts
existing on the date of filing the bankruptcy petition determine the existence
of available exemptions, but . . . it is the entire state law applicable on the filing
date that is determinative.” Id. at 304. Although the bankruptcy petition was
filed before the six-month exemption period had ended, “‘freezing’ the
exemption for the proceeds simply because it was in effect at the date the
petition was filed, [would] effectively read the 6-month limitation out of the
statute, and transform[] an explicitly limited exemption into a permanent one.”
Id. Furthermore, the legislative intent 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.” Id. at 305 (quoting In re England,
975 F.2d 1168, 1174–75 (5th Cir. 1992)). Accordingly, we held that when the
debtors “failed to reinvest the proceeds in another Texas homestead within the
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statutory time period, those proceeds lost their exemption, freeing the Trustee
to reach the proceeds as part of the bankruptcy estate.” Id. (footnote omitted).
The principles articulated in Zibman also apply when a homestead is
sold during the pendency of bankruptcy proceedings. See In re Frost, 744 F.3d
at 387. In Frost, the debtor sold his Texas homestead after filing for Chapter
13 bankruptcy, but because he failed to reinvest the proceeds in another
homestead within six months of the sale, we held that the proceeds were
“removed from the protection of Texas bankruptcy law and no longer exempt
from the estate.” Id. at 385, 387. In reaching this conclusion, we addressed
many of the same arguments the Hawks raise in the present case. Frost argued
that Zibman was “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.” Id. at 387. Frost pointed out that § 522(c) provides that
“property exempted under this section is not liable during or after the case for
any debt of the debtor.” Id. at 387 (quoting 11 U.S.C. § 522(c)). He also
suggested “that all bankruptcy exemptions are fixed at the time of the
bankruptcy petition and do not later lose their exempt status.” Id. at 386. Thus,
Frost argued 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.” Id. at 388.
Responding to Frost’s arguments, we emphasized that an “essential
element of the exemption must continue in effect even during the pendency of
the bankruptcy case.” Id. (quoting In re Zibman, 268 F.3d at 301). Therefore,
“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.” Id. We went on to explain:
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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.
Id. at 389. When Frost sold his homestead, his “interest in his homestead
changed from an unconditionally exempted interest in the real property itself
to a conditionally exempted interest in the monetized proceeds from the sale of
that property.” Id. Consequently, we concluded that “[o]nce the conditional
exemption expired . . . Frost lost his right to withhold the sale proceeds from
the estate.” Id.
Similarly, when the Hawks withdrew funds from the IRA, their interest
in those funds changed from an unconditionally exempted interest in the
amounts held in the retirement account to a conditionally exempted interest
in the amounts distributed from the retirement account. See Tex. Prop. Code
§ 42.0021(a), (c). “[I]t is the entire state law applicable on the filing date that is
determinative,” and “[c]ourts cannot apply a juridical airbrush to excise
offending images necessarily pictured in the petition-date snapshot.” In re
Zibman, 268 F.3d at 304. Texas’s requirement that funds be rolled over into
another retirement account within sixty days of distribution “is inextricably
intertwined with the exemption the state has chosen to provide.” See id. Thus,
when the Hawks failed to deposit the funds into another retirement account
within sixty days of withdrawal, the conditional exemption expired, and the
Hawks lost their right to withhold the funds from the estate. See § 42.0021(c).
Despite Zibman and Frost, the Hawks argue that once the time for
objections passed, the exemption was automatically allowed, and the exempted
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property was forever removed from the property of the estate. As noted above,
11 U.S.C. § 522(l) provides that “[u]nless a party in interest objects, the
property claimed as exempt on [the schedules] is exempt.” Moreover, Federal
Rule of Bankruptcy Procedure 4003(b) indicates that parties in interest must
generally object to claimed exemptions within thirty days after the creditors’
meeting. In Taylor v. Freeland & Kronz, the Supreme Court held that under
§ 522(l) and Rule 4003(b), a party in interest cannot “contest the validity of an
exemption after the 30-day period,” even if “the debtor had no colorable basis
for claiming the exemption.” 503 U.S. 638, 639, 643–44 (1992). Although the
Hawks do not cite Taylor directly, they suggest that the Trustee was unable to
contest the exempt status of the IRA funds after the 30-day period ended.
Nonetheless, the Supreme Court’s decision in Taylor is not fatal to the
Trustee’s position in the present case. In Frost, we stressed that it was “the
land itself—not its monetary value—that [was] protected under Texas law and
‘exempted under [§ 522].’” 744 F.3d at 391 (quoting 11 U.S.C. § 522(c)). In other
words, “Frost’s homestead was exempted from the estate . . . by virtue of its
character as a homestead.” Id. at 387. But when Frost sold the homestead, the
property’s “essential character . . . changed from ‘homestead’ to ‘proceeds,’”
permitting the trustee to “challenge[] the exemption of those proceeds from the
estate.” Id. Likewise, when the Hawks claimed an exemption and no party in
interest objected, the funds held in the IRA were exempted because of their
essential character as “assets held in . . . an individual retirement account.”
See Tex. Prop. Code § 42.0021(a). The funds would have stayed exempt during
the bankruptcy proceeding so long as they remained in the IRA and continued
to comply with Section 42.0021(a)’s requirements. However, when the Hawks
withdrew the funds, the essential character of the property changed from
assets held in a retirement account to “[a]mounts distributed from a
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[retirement] account,” see § 42.0021(c), which enabled the Trustee to contest
the exemption of the distributed amounts. 1
B. Chapter 7 and Chapter 13 Cases
The Hawks also contend that Frost is distinguishable because it was a
Chapter 13 case, whereas the instant case was filed under Chapter 7. As an
initial matter, this argument is unconvincing given that Frost relied heavily
on principles established in Zibman, a Chapter 7 case. Furthermore, Frost does
not limit its holding to Chapter 13 cases and does not even mention that the
case was brought under Chapter 13. See In re Frost, 744 F.3d at 387; Lowe v.
DeBerry, No: 5:15-cv-1135, slip op. at 17 (W.D. Tex. Mar. 10, 2017) (“[N]othing
in Frost itself limits its holding to Chapter 13.”). “The only section of the
Bankruptcy Code examined by the Frost court is Section 522, which applies to
both Chapter 7 and Chapter 13 cases.” DeBerry, slip op. at 17. Nevertheless,
the Hawks insist that Frost does not apply in the instant case because of
important differences between Chapter 7 and Chapter 13 proceedings.
“Chapter 7 allows a debtor to make a clean break from his financial past,
but at a steep price: prompt liquidation of the debtor’s assets. When a debtor
files a Chapter 7 petition, his assets, with specified exemptions, are
immediately transferred to a bankruptcy estate.” Harris v. Viegelahn, 135 S.
Ct. 1829, 1835 (2015). The trustee then sells the property of the estate and
distributes the proceeds to the debtor’s creditors. 11 U.S.C. §§ 704(a)(1), 726.
The Hawks argue that when exemptions are allowed in a Chapter 7 case, the
exempted property is permanently “removed from the property of the estate,”
and “the debtor can later sell them and use the proceeds as he or she will.” See
In re D’Avila, 498 B.R. 150, 159 (Bankr. W.D. Tex. 2013).
1 The Hawks also argue that the funds were permanently exempted because the
Trustee first objected to the exemption after filing a report declaring that there were no assets
for distribution. However, the Hawks have not cited any authority in support of this position.
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Chapter 13 is a “wholly voluntary alternative to Chapter 7.” Harris, 135
S. Ct. at 1835. In a Chapter 13 case, a debtor is allowed “to retain his property
if he proposes, and gains court confirmation of, a plan to repay his debts over
a three- to five-year period.” Id.; see 11 U.S.C. §§ 1321, 1322, 1325. “[T]he
Chapter 13 estate from which creditors may be paid includes both the debtor’s
property at the time of his bankruptcy petition, and any wages and property
acquired after filing.” Harris, 135 S. Ct. at 1835; see 11 U.S.C. § 1306(a).
“Except as otherwise provided in the plan or the order confirming the plan, the
confirmation of a plan vests all of the property of the estate in the debtor.” 11
U.S.C. § 1327(b). The Hawks argue that “unlike the operation of property
exemptions in Chapter 7,” exempted property does not actually leave the
bankruptcy estate during Chapter 13 proceedings “because no property vests
with the debtor prior to confirmation.”
In support, the Hawks point to one case in which a bankruptcy court held
that Frost does not apply to Chapter 7 cases. See In re Montemayor, 547 B.R.
684, 713 (Bankr. S.D. Tex. 2016). In Montemayor, the bankruptcy court
reasoned that the homestead in Frost “never truly left the chapter 13 estate,
because it was exempt but would not vest in the debtor until the resolution of
either an order granting plan confirmation or . . . completion of all plan
payments under the plan and the entry of an order of discharge.” 2 Id. at 710(emphasis omitted). The bankruptcy court noted that “there is no similar
provision applicable in a chapter 7 bankruptcy.” Id. at 712. Accordingly, the
court concluded that “Frost’s core holding is based on factually distinguishable
underpinnings and, as such, is distinguishable in a chapter 7 where, such as
here, the debtor sells a properly exempted homestead post-petition.” Id. at 713.
2 Though acknowledging that this rationale was “not specifically mentioned by the
Fifth Circuit” in Frost, the bankruptcy court viewed this as the Fifth Circuit’s “implied
analysis.” Montemayor, 547 B.R. at 709.
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Yet other district and bankruptcy courts have held that Frost is
applicable in Chapter 7 cases. DeBerry, slip op. at 19; In re Smith, 514 B.R.
838, 850 (Bankr. S.D. Tex. 2014). For example, in Smith, the debtor filed for
Chapter 7 bankruptcy and claimed a homestead exemption under Texas law,
without objection from the trustee or any creditors. 514 B.R. at 841. After the
bankruptcy court issued an order discharging the debtor, the debtor sold his
homestead but did not reinvest the proceeds in another homestead within six
months of the sale. Id. The bankruptcy court held that the trustee was entitled
to recover the proceeds from the debtor under Frost and Zibman, noting that
“it is not the exempt status itself that carries through the entirety of a case,
but rather the law governing the exemption.” 3 Id. at 848, 850.
Likewise, in the instant case, the snapshot rule dictates that the law
governing the IRA exemption (Texas Property Code § 42.0021) is applicable
throughout the entirety of the case. Thus, the IRA funds were not forever
removed from the property of the estate when the exemption was allowed.
“When a debtor elects to avail himself of the exemptions the state provides, he
agrees to take the fat with the lean; he has signed on to the rights . . . but also
to the limitations . . . integral in those exemptions as well.” In re Zibman, 268
F.3d at 304. Texas law clearly placed a limitation on the Hawks’ IRA exemption
during the pendency of the bankruptcy proceeding: if the Hawks elected to
receive a distribution from the IRA, they needed to reinvest those funds in
another retirement account within sixty days or else lose their exemption. See
Tex. Prop. Code § 42.0021(a), (c). Allowing a Chapter 7 debtor to retain
distributions from an IRA that have not been rolled over into another account
3 The Hawks argue that the bankruptcy court erred by “retroactively applying” Smith
to the instant case, even though the Hawks withdrew funds from the IRA before Smith was
decided. But because we review legal conclusions de novo, any error by the bankruptcy court
on this point is irrelevant. We simply view Smith as a persuasive interpretation of Frost.
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within sixty days would directly contradict § 42.0021(c) and “produce
inequitable results, particularly when Chapter 13 debtors in [similar]
situations are not permitted to retain such proceeds. It would effectively read
the [sixty day] limitation out of the statute in Chapter 7 cases.” DeBerry, slip
op. at 19.
The Hawks also note that pursuant to 11 U.S.C. § 1306(a)(1), the estate
in a Chapter 13 case includes “all property of the kind specified in . . . section
[541] that the debtor acquires after the commencement of the case but before
the case is closed, dismissed, or converted.” The Hawks contend that this
Court’s decision in Frost effectively brought “proceeds that became nonexempt
after the expiration of the time-limited exemption back into the estate,” which
was permissible in a Chapter 13 case because the proceeds supposedly
constituted property that the debtor acquired after the commencement of the
case. Because Chapter 7 does not contain an analogous provision, the Hawks
reason that previously exempted property that becomes nonexempt under
state law after commencement of a Chapter 7 case remains excluded from the
bankruptcy estate.
This argument might make sense if the proceeds from the homestead
sale in Frost constituted property that the debtor acquired after the
commencement of the case, but Frost did not characterize the debtor as
acquiring a new property interest when he sold his homestead. 4 Rather, the
opinion stated that Frost’s existing “interest in his homestead changed from
an unconditionally exempted interest in the real property itself to a
conditionally exempted interest in the monetized proceeds from the sale of that
property.” 744 F.3d at 389 (emphasis added). After the conditional exemption
4 In addition, Frost did not mention § 1306 and gave no indication that the Court’s
reasoning was based on this attribute of Chapter 13 cases.
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expired, “Frost lost his right to withhold the sale proceeds from the estate,” not
because the proceeds were a wholly new property interest that Frost acquired
after commencement of the case, but because Frost’s interest in the property
had changed and no longer met the conditions of the exemption. Id.
In the case at bar, the Hawks held a property interest in the IRA funds
when their bankruptcy petition was filed. Although the essential character of
the funds changed over time, the Hawks did not acquire new property within
the meaning of § 1306(a)(1) when they withdrew those funds from the IRA. On
the contrary, their existing interest simply changed from an unconditionally
exempted interest in the funds held in the IRA to a conditionally exempted
interest in the funds distributed from the IRA. Texas law dictated that the
Hawks needed to roll over the distributed funds into another retirement
account within sixty days in order to maintain the funds’ exempt status. But
the Hawks did not do so. Accordingly, we hold that the bankruptcy court did
not err in concluding that the Hawks could no longer claim the funds as exempt
under Texas law.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the bankruptcy court’s order
requiring the Hawks to turn over the funds to the Trustee.
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