Whether a debtor may keep a state-law homestead exemption inside bankruptcy, notwithstanding that the proceeds would be subject to attachment and execution outside bankruptcy because the debtor sold the home and the exemption expired under applicable state law

QUESTION PRESENTED Virtually every State has a “homestead exemption” that shields a debtor’s home from attachment and execution. Most States also permit the debtor to sell his or her home and buy a new one within a limited time (say, six months). But if the debtor fails to timely reinvest, the exemption expires and creditors can attach or execute upon the proceeds. The Bankruptcy Code incorporates “State or local law that is applicable on the date of the filing of the petition” to determine what property is exempt from distribution to creditors. 11 U.S.C. 522(b)(8). In conflict with the Ninth Circuit and Fifth Circuit, the First Circuit held that, inside bankruptcy, a homestead exemption can never expire even if it would have expired under applicable state law outside bankruptcy. That decision enables debtors to permanently shield proceeds from bankruptcy creditors even after the debtor sold the home, the reinvestment period elapsed, and the money is being kept as cash. The question presented is: Whether a debtor may keep a state-law homestead exemption inside bankruptcy, notwithstanding that the proceeds would be subject to attachment and execution outside bankruptcy because the debtor sold the home and the exemption expired under applicable state law. @