BAPCPA's Homestead Exemption: A Third Judge Weighs In on the Debate

In In re Virissimo, 2005 WL 2854341 (Bankr. D. Nev., 10/31/05), Judge Linda B. Riegle of the Bankruptcy Court for the District of Nevada sided with Judge Robert Mark, Chief Bankruptcy Judge of the Bankruptcy Court for the Southern District of Florida, in the debate (referenced here) between Judge Mark and Arizona's Judge Haines regarding whether BAPCPA's limitation on the homestead exemption, as set forth in § 522(p) to the Bankruptcy Code, limits the amount that a resident debtor can claim as exempt as "homestead" property under state law if the debtor has not owned the property for more than 1215 days and did not previously own property in the state.

Judge Riegle summarized the debate between Judge Haines and Judge Mark as follows, ultimately concluding that Judge Mark had the winning argument:

Judge Haines, in In re McNabb, 326 B.R. 785 (Bankr. D. Ariz. 2005) has held that the language "as a result of electing under subsection (b)(3)(A) to exempt property under State or local law" is plain and that there is no need to resort to legislative history. Under his interpretation, the plain meaning is that the $125,000 limitation only applies to debtors in those states that allow the debtors to elect between federal and state exemptions. It is not applicable to debtors that live in opt-out states such as Arizona and, by inference, Nevada.


In a contrary opinion, Judge Mark, in In re Kaplan, 331 B.R. 483, 2005 WL 2508151 (Bankr. S.D. Fla. 2005) has disagreed with the reasoning in In re McNabb, and has determined that the legislative history should be considered. As he notes, the phraseology is not merely awkward but rather it is subject to more than one plausible reading. Because of this ambiguity courts must look at the legislative history to confirm legislative intent. Moreover, even if the plain meaning appears to limit the application of the statute, the court must still consider legislative intent where a contrary legislative intent is clearly expressed. Looking at the legislative history, Judge Mark found Congress clearly intended to make this limitation applicable to all debtors....

[A]s Judge Mark noted, the plain meaning of the statue will be rebutted when a contrary legislative intent is clearly expressed. "In such cases, the intention of the drafters, rather than the strict language, controls." In re Kaplan, 2005 WL 2508151 at 4, citing United States v. Ron Pair Enter., Inc., 489 U.S. 235, 243, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).

Therefore, a resort to legislative history is necessary. As set forth in the House Report 109-31(Part I) to accompany S. 256, reported in the legislative history at 2005 (June) U.S.C.C.A.N. p. 102:

The bill also restricts the so-called "mansion loophole." Under current bankruptcy law, debtors living in certain states can shield from their creditors virtually all of the equity in their homes. In light of this, some debtors actually relocate to these states just to take advantage of their "mansion loophole" laws. S. 256 closes this loophole for abuse by requiring a debtor to be a domiciliary in the state for at least two years before he or she can claim that state's homestead exemption; the current requirement can be as little as 91 days. The bill further reduces the opportunity for abuse by requiring a debtor to own the homestead for at least 40 months before he or she can use state exemption law; current law imposes no such requirement.

A footnote (# 72) in this legislative history further explains that:

If the debtor owns the homestead for less than 40 months, the provision imposes a $125,000 homestead cap. In effect, this provision overrides state exemption law authorizing a homestead exemption in excess of this amount and allows such law to control if it authorizes a homestead exemption in a lesser amount. Id.

Although Judge Haines was dismissive of the legislative history, indicating that it was merely a recital of the statute, this Court believes that the "recital" indicates that Congress clearly intended to apply the provisions of (p) to all debtors and not merely those citizens of states that permit the use of federal exemptions....

Nowhere is there a suggestion that the $125,000 homestead limitation is applicable to debtors in some states but not to debtors in other states. Rather, it is obvious that Congress intended to eliminate some of anomalies created by the use of state homestead exemptions and create a more uniform, predictable set of exemptions. Congress wanted to close what it perceived was the abuse of exemptions caused, in part, by the varying state laws and overly generous homesteads. There is no question that the issue of exemptions was on the mind of Congress as well as the public. See generally, Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr. L.J. 485 (2005). Charles Jordan Tabb, "The Death of Consumer Bankruptcy in the United States, 18 Bankr. Dev. J. 1, 42-46. (2001).

CONCLUSION

11 U.S.C. § 522(p) is applicable even though Nevada does not allow the choice of federal exemptions. Because the debtors acquired their homes within the 1215 days before the filing they are limited to the $125,000 homestead set forth in that section notwithstanding the fact that the Nevada homestead is higher.


Steve Jakubowski

© Steve Jakubowski 2005