Debtor must claim an exemption to avoid a transfer: In re Gross

In re Gross (Bk 99-16587; Decision October 7, 2008; Judge Bucki): Debtor’s original case was filed 12/1/99 and she claimed the cash exemption. Less than a month prior (11/19/99), a creditor filed a judgment lien on her house. The debtor was unaware of the lien until the case was reopened in 2008. The debtor did not amend her exemptions to switch from cash to homestead; rather she moved to avoid the judgment as a preferential transfer. Debtors can avoid involuntary preferential transfers (and other transfers) under 522(h) if a trustee can, but does not avoid the transfer, if the debtor “could have exempted” the transferred asset. The debtor argued, unsuccessfully, that she “could have” exempted the equity in the homestead, even though she didn’t. Judge Bucki ruled that the debtor must actually claim the exemption to avoid the transfer and/or avoid the lien. The Judge also stated that any action to avoid a preferential transfer must be by AP and not by motion.