BAPCPA Outline: Part IV, Sections A-N: Homestead Exemptions -- "To Cap or Not to Cap?" -- That's No Longer a Question
This sixth post of the BAPCPA Consumer Bankruptcy Outline for cases decided between 6/1/05 and 5/31/06 addresses homestead exemptions. As reported here, this area absorbed a signficant amount of judicial energy in the early days following BAPCPA's enactment as courts wrestled with the conflict between the "plain meaning" of BAPCPA's inartfully drafted "homestead cap" and the apparent legislative intent to extend the $125,000 cap to all states. As Arizona's Judge Randolph J. Haines (who is no stranger to philosophical debates) noted in BAPCPA's first reported decision, the language "as a result of electing under subsection (b)(3)(A) to exempt property under State or local law" is clear, and its "plain meaning" is that the $125,000 homestead cap applies to debtors in states that allow the debtors to elect between federal and state exemptions, but not in states like Arizona (or Florida or Nevada) that do not. In reaching this conclusion, Judge Haines had this to say about BAPCPA's legislative history:
Legislative history is virtually useless as an aid to understanding the language and intent of BAPCPA. The section-by-section analysis in the Report of the House Committee on the Judiciary merely provides a gloss of the statutory language of BAPCPA § 322. It does not provide an example of the kind of problem or abuse it was intended to correct, nor a citation to a case whose result it sought to alter. Consequently it provides no clue to the intended significance of the "as a result of electing" language. Both the majority and the dissents to the 1997 Commission Report are similarly unhelpful as to the significance of this language. In re McNabb, 326 B.R. 785 (Bankr. D. Ariz. 2005).
Judge Haines' remark about the uselessness of legislative history as an aid to understanding BAPCPA surely carries some merit, as the "common wisdom" in this post suggests. It just hasn't carried the day as regards BAPCPA's homestead cap provisions, and courts around the nation have uniformly rejected Judge Haines' literalist approach.
Other parts of the homestead exemption outline offer little of interest to anyone other than those toiling in the trenches of consumer bankruptcy (and perhaps acute insomniacs too). Stay tuned, however, for upcoming summer required reading lists of recent bankruptcy-related articles of interest.
IV. Homestead Exemptions
A. Homestead cap applies in opt-out states
1. Phrase “as a result of electing” in Code Section 522(p) does not indicate an intent by Congress to make the homestead cap applicable only to debtors in states which have not opted out of federal bankruptcy exemptions, and who thus have choice between state and federal exemptions. Provision caps the homestead exemption available to debtors in opt-out states that don't opt-out, as well as in states, like Florida, that do opt-out. In re Kaplan, 331 B.R. 483 (Bankr. S.D. Fla. 2005) (Mark, J.).
2. Section 522(p) is applicable even though Nevada does not allow the choice of federal exemptions. Because the debtors acquired their homes within 1,215 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. In re Virissimo, 332 B.R. 201 (Bankr. D. Nev. 2005) (Riegle, J.).
3. "As a result of electing" language limiting the maximum state law homestead exemption to debtors who acquired homestead within 1,215 days of petition date and who have "elect[ed]" to claim state law exemptions could not be interpreted so as to limit this homestead cap only to debtors who reside in states that have not opted out of federal bankruptcy exemptions, and who thus have choice between state and federal exemptions. In re Buonopane, -- B.R. -- (Bankr. M.D. Fla. 2006) (Paskay, J.).
4. BAPCPA's $125,000 cap on the homestead exemption (for properties obtained within 40 months of the filing) applies nationwide. In re Kane, 336 B.R. 447 (Bankr. D. Nev. 2006) (Markell, J.).
5. "The "result of electing" phrase does not, by its terms, compel the conclusion that Section 522(p) is inoperative in Florida and other opt-out states. That phrase can be read in harmony with applying the $125,000 in all states. Even if there is an ambiguity, the conclusion from the legislative history is inescapable–there is no expressed intent to make the $125,000 cap operative in some states, but not others." In re Landahl, 338 B.R. 920 (Bankr. M.D. Fla. 2006) (May, J.).
B. Homestead cap does not apply in opt-out states
1. The language in Code Section 522(p) "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. 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 re McNabb, 326 B.R. 785 (Bankr. D. Ariz. 2005) (Haynes, J.) (1st BAPCPA decision).
C. BAPCPA's Section 522(o) Limitations
1. Debtor's sale of nonexempt assets and use of sales proceeds to pay off second mortgage on his home and increase equity in home on eve of bankruptcy went beyond mere bankruptcy estate planning and warranted denial of homestead exemption for any equity so created. While debtor may convert non-exempt assets into exempt assets on eve of bankruptcy, BAPCPA's Section 522(o) requires that conversion not be done with intent to defraud creditors, as manifested by extrinsic evidence. Since this case was filed on April 20, 2005 when BAPCPA was signed, Section 522(o) applies. In re Maronde, 332 B.R. 593 (Bankr. D. Minn. 2005) (Dreher, J.).
D. BAPCPA's Section 522(p) Limitations
1. Term "previous principal residence," as used in "safe harbor" provision of Section 522(p)(2)(B) indicating that statutory cap on state law homestead exemption is available to debtors who acquire homestead within 1,215 days of petition date, will not apply to limit exemption that debtor can claim in value of debtor's present residence that is attributable to his accrual of equity through his ownership of previous residences located in same state that debtor acquired prior to start of this 1,215-day period. Limitation is not limited only to residence that debtor owned immediately prior to current residence. "The statute is clear that the limitation contained therein applies to that portion of the value of a debtor's residence, acquired within 1215 days of the petition date, which exceeds $125,000. In addition, however, the extent of the limitation is determined only after deducting from the value of a debtor's current residence that portion of the property's value attributable to the debtor's ownership of a previous residence, provided that the previous residence is located within the same state as the current residence and was acquired in excess of 1215 days before the petition date…. The gravamen of § 522(p)(1) is to limit the ability of individuals desiring to take advantage of the lenient exemption provisions of ‘debtor-friendly’ states by relocating to such states. H.R. Rep. No. 190-31, pt. 1, at 102 (2005). To the contrary, the ‘safe harbor’ language of § 522(p)(2)(B) would appear to have been intended to afford protection to individuals like the Debtor who, rather than seeking to take advantage of Florida's exemption provisions to shelter illicitly- or improperly-obtained funds, simply have benefited as a result of their ownership of Florida real property and the general appreciation of property values attributable to previous intra-state transactions." (Emphasis in original.) In re Wayrynen, 332 B.R. 479 (Bankr. S.D. Fla. 2005) (Friedman, J.).
E. BAPCPA's Section 522(q) Limitations
1. The phrase “criminal act” in BAPCPA's new Section 522(q) capping a state homestead claim at $125,000.00 if the debtor owes a debt based upon certain criminal acts, does not require a conviction or a certain level of culpability. "To read 11 U.S.C. § 522(q)(1)(B)(iv) in this way is also consistent with a second applicable rule of statutory construction. That is, where 'Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.' Because Congress requires a conviction for purposes of § 522(q)(1)(A) and a criminal act for § 522(q)(1)(B)(iv), the latter cannot include the requirement of the former." In re Larson, 340 B.R. 444 (Bankr. D. Mass. 2006) (Hillman, J.).
F. Entireties Property
1. Bankruptcy Code's entireties exemption is not only a function of the value of the bankruptcy estate's equity in the entireties property claimed as exempt, but also amount of enforceable claims held by creditors against both debtor and spouse. Allowed exemption equals value of equity in undivided interest minus whatever debts are owed by the debtor jointly with his spouse. In re Raynard, 327 B.R. 623 (Bankr. W.D. Mich. 2005) (Hughes, J.).
1. Trustee objected to claimed homestead exemption, arguing that debtor was limited to state law exemptions available under Colorado law, where the debtor resided before moving to Florida less than 730 days before petition date. Court finds debtor ineligible under 730 day rule to claim Florida state exemptions. Debtor also couldn't claim Colorado exemptions because debtor was not a Colorado resident anymore and Colorado state exemptions were enacted solely for benefit of Colorado residents. However, Debtor could claim federal bankruptcy exemptions despite the fact that both Colorado and Florida are opt-out states. In re Underwood, 342 B.R. 358 (Bankr. N.D. Fla. 2006) (Killian, J.).
1. Under Missouri law, debtor showed intent to not abandon by retaining connections with property, such as going on weekends and when school is out. Also, mortgage payments current and personalty left behind. Debtor intended to attempt to keep partial parcel for mobile home. In re Seeley, 341 B.R. 277 (Bankr. W.D. Ark. 2006) (Dow, J.).
I. Appreciation in Home Equity Value
1. Under BAPCPA's new Code section 522(p), a debtor's increasing equity in residential property from regular mortgage payments made during the 40 months preceding the debtor's bankruptcy filing is not an "interest" acquired during the period that would be subject to the BAPCPA's statutory homestead cap. Thus, the increased equity position remains exempt. "[O]ne does not actually 'acquire' equity in a home. One acquires title to a home. The Debtors acquired title and fee to their home in early 2000, about five years before Congress passed the BAPCPA, and two and half years prior to the start of the 1215 day period applicable to their bankruptcy case. The 'interest' the Debtors acquired was the actual purchase of the home, which was completed well before the 1215-day period. Thus, the 'interest' held by the debtors in their homestead is outside the 1215-day period and not subject to the $125,000 cap." In re Blair, 334 B.R. 374 (Bankr. N.D. Tex. 2005) (Hale, J.).
J. Intervening Statutory Changes
1. Increase in NY's homestead exemption applicable to debts existing when the exemption was amended. Creditor argued exemption could not be applied retroactively. Court holds that nothing in the amendment indicated whether it was to be applied retroactively. Court applies general rule of statutory construction that statutes designed to remedy defects in the common law have retroactive effect. According to the Court, the homestead exemption remedied the problem arising when people lost their homes to creditors with money judgments because the common law did not provide for a homestead exemption. Court holds that remedial statutes may be applied retroactively only to the extent they do not impair vested rights and that retroactive application of the increase in the homestead exemption did not impair the creditor’s rights because the homestead exemption existed when the claim was created. All that changed, the court notes, was the amount of the exemption (from $10,000 to $20,000). Thus, while the original homestead exemption could not have retroactive effect, creditors should not assume that future amendments are limited to prospective effect only. In re Little, 2006 WL 1524594 (Bankr. N.D.N.Y. 4/24/06) (Gerling, J.).
2. "This Court adopts the reasoning and the decision in Little, that the Homestead Exemption Amendment is remedial and, therefore, is to be applied retroactively, and that such an application would not violate the United States Constitution." In re Hayward, -- B.R. -- (Bankr. W.D.N.Y. 2006) (Ninfo, J.).
1. Michigan exemption statute that unambiguously permitted debtors in bankruptcy to claim exemption for interests of co-debtor and any dependent, in addition to their own, was preempted by federal law. In re Vinson, 337 B.R. 147 (Bankr. E.D. Mich. 2006) (Tucker, J.).
L. Residency Requirements
1. Hungarian citizen in US on multiple entry business visa was barred from staying in US for more than 180 days. Court holds that to qualify for Florida homestead exemption, Debtor must be a permanent resident of the state and intend to make his home his permanent residence. An alien can only meet this residency requirement if he has obtained permanent resident status as of the petition date. Here, on the petition date, the application to adjust to permanent resident status was pending and the debtor did not acquire permanent resident status until more than three months after filing his petition. Consequently, the Debtor did not fulfill the residency requirement as of the petition date. In re Fodor, 339 B.R. 519 (Bankr. M.D. Fla. 2006) (Williamson, J.).
M. Revocable Trusts and Homestead Exemptions
1. Debtor transfers home to revocable trust, of which she is the owner and beneficiary. Though she was beneficial and de facto owner, homestead exemption could not be applied where trust held legal title to the property. In re Estarellas, 338 B.R. 538 (Bankr. D. Conn. 2006) (Krechevsky, J.).
2. Equitable interest of debtors in living, revocable trust, of which they were the sole beneficiaries sufficient under Kansas law to obtain protection under state's homestead exemption. Redmond v. Kester (In re Kester), 339 B.R. 749 (Bankr. 10th Cir. 2006).
3. Asserting full amount of state’s homestead exemption meant the entire cash value of the exemption would be preserved, but such declaration did not remove home from the bankruptcy estate, and trustee could sell property and secured creditor could amend proof of claim to seek value of appreciation beyond senior liens and exemption amount. Debtors need to make clear effort to remove property from estate based on exemptions. In re Shorey, No. 04-01116 (Bankr. D. Ariz. 2006) (Hollowell, J.).
N. Miscellaneous Homestead Exemption Rulings
1. Debtor's use of part of basement as office did not render his interest in that part of the house non-exemptible under District of Columbia law, and debtor's incidental renting of two bedrooms in his three-bedroom single-family dwelling to university students did not destroy the character of those rooms as part of real property used as debtor's residence. Thus, debtor entitled to exemption for whole residence. In re Springmann, 328 B.R. 251 (Bankr. D.D.C. 2005) (Teel, J.).
2. "Stacking" or doubling an exemption is permitted in a joint bankruptcy case under Code section 522(m), but not if joint debtor has no interest in property in spouse's name, and thus debtors can't stack their federal wild card exemptions. Contribution of payment of real estate taxes, if the only contribution of other spouse, is insufficient under Wisconsin law to establish other debtor's interest in property. In re Czerneski, 330 B.R. 240 (Bankr. E.D. Wis. 2005) (Kelley, J.).
3. Fact that $1.00 exemption claimed by chapter 7 debtors in timeshare, when added to indebtedness that timeshare secured, resulted in sum exceeding the timeshare's estimated fair market value on petition date did not mean that debtors' entire equity in property was exempt. Rather, having claimed exemption in specific amount of $1.00, debtors were limited to $1.00 exemption. Further, chapter 7 trustee's failure to object to $1.00 exemption in timeshare, whose estimated fair market value was equal to indebtedness secured by lien, did not prevent trustee (after time for objections to exemptions passed) from seeking authority to sell timeshare free and clear of liens and to distribute sales proceeds. Sales motion was not belated objection to claimed exemption. In re Einkorn, 330 B.R. 570 (Bankr. E.D. Mich. 2005) (Rhodes, J.).
4. Michigan statute authorizing bankrupt debtors to exempt "interest of the debtor, the codebtor, if any, and the debtor's dependents, not to exceed $30,000," in homestead permitted couple to exempt from their separate bankruptcy estates an interest of up to $30,000 in the aggregate, not the $60,000 requested by stacking exemptions. In re Lindstrom, 331 B.R. 267 (Bankr. E.D. Mich. 2005) (Shefferly, J.).
5. Debtors' intent to move from home without intending to return does not destroy homestead rights on the basis of abandonment. Debtors intended to sell house and reinvest proceeds in new house, and thus exemption could still be claimed. In re Huddleston, 2005 WL 2271859 (Bankr. C.D. Ill. 2005) (Fines, J.).
6. Debtors who rented out portion of property as sites for mobile homes and recreational vehicles were not entitled to Florida homestead exemption for the entire 2.3 acre tract on which their home was located. Further, indivisible nature of property and mixed residential and commercial uses of it enabled trustee to sell entire property, with apportionment of sales proceeds. In re Radtke, -- B.R. -- (Bankr. S.D. Fla. 2006) (Friedman, J.).
7. Postpetition appreciation in value of homestead above the amount at which it was implicitly valued when Chapter 13 plan was confirmed, which gave rise to some nonexempt equity in the property, was not property of chapter 7 estate following conversion. Hence, no proceeds from postconfirmation, preconversion sale of homestead had to be turned over to chapter 7 trustee. In re Niles, 342 B.R. 72 (Bankr. D. Ariz. 2006) (Case, J.).
8. Court states regarding pre-BAPCPA case. Question is whether under 11 U.S.C. § 522(b)(2)(B) the Debtor can properly claim exempt his interests in the Michigan Properties held in tenancy by the entirety, notwithstanding the fact that Illinois opted out of the federal exemptions and limits tenancy by the entirety to homestead property. The proper construction and application of § 522(b)(2) and the relevant Illinois exemption statute was an issue of first impression for the Court. Court finds that Illinois limits creation of tenancy by the entirety to homestead property. Because the Michigan Properties were not the homestead property of the debtor, Court finds that the debtor may not claim exemptions in those properties under § 522(b)(2)(B). In re Giffune, -- B.R. -- (Bankr. N.D. Ill. 2006) (Squires, J.).
[NB: Certain links are to Westlaw. Those who do not have access to Westlaw may contact me directly if they would like to view a particular case, though all federal courts maintain their own websites where judicial opinions may be accessed by the public free of charge (e.g., Bankr. N.D. Ill. - Judge Wedoff opinions). Because all the outline's case references identify the deciding judge, you should be able to find the opinions online with minimal effort.]
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As to the extent of pre-bankruptcy planning allowable after BAPCPA under Section 522(o) and a look at some real legislative history, see my article done for the ABI Consumer Committee recently - reproduced at http://www.larkinhoffman.com/files/OTHER/KCE_4-2008.pdf