Proceeds from homestead sale — exempt?

When a homestead is permanently exempted from a bankruptcy estate, are any proceeds from a subsequent sale of the homestead also permanently exempt? Viegelahn v. Frost found they were not.  No. 12-50811 (March 5, 2014).  Frost argued that In re Zibman, 268 F.3d 298 (5th Cir. 2001), was distinguishable because he sold his homestead after petitioning for bankruptcy, when the homestead was already exempted, while Zimban concerned homestead proceeds obtained before bankruptcy. The Fifth Circuit found that distinction immaterial, concluding that once a debtor sells his homestead the essential character of the homestead changes from “homestead” to “proceeds,” placing it under a more limited six month exemption.  Accordingly, when a debtor does not reinvest the proceeds within that period, they are removed from the protection of Texas law and are no longer exempt from the estate.

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