In re Widdershoven

ORDER

This matter came before the Court on an appeal by the trustee in bankruptcy from an order of the bankruptcy court sustaining the bankrupts’ objections to the trustee’s report of exempt property. The crucial issue is whether the six month period during which proceeds from the sale of a homestead are exempt under California law is tolled from the filing of the petition in bankruptcy until the property is set aside as exempt by the bankruptcy court.

In September 1976, the bankrupts recorded a declaration of homestead on real property located in Monterey, California. This homestead property was sold by the bankrupts on February 2,1977. Part of the proceeds of sale consisted of a promissory note, dated January 24, 1977, and due one year later. The proceeds of sale were exempt from the reach of creditors pursuant to California Civil Code § 1265 which provides, in part, that if a homestead is sold “the proceeds arising from such sale to the extent of the value allowed for a homestead exemption . . . , shall be exempt to the owner of the homestead for a period of six months.” The purpose of the provision is to allow the homestead owner to substitute one home for another without…