A debtor may exempt her interest in a nonprimary residence under Section 522(d)(1), according to the Second Circuit. Furthermore, the federal exemption can be valid even if the debtor does not reside in the property, so long as a dependent does.
In other words, a home may be exempt under the federal exemptions even if the property would not qualify for a homestead exemption under state law.
A husband and wife purchased a home. Later, they divorced but continued owing the home jointly. The former husband lives in the home. The former wife lives nearby.
The couple share joint custody of their son. He lives primarily with the mother but spends several days a week in the father’s home. The home was subject to a judicial lien.
The wife filed bankruptcy, claimed an exemption in the home under Section 522(d)(1), and sought to avoid the judicial lien under Section 522(f).
The judgment lien creditor contended that the debtor-wife could not exempt the property because it was concededly not her primary residence. She could not establish a valid homestead exemption under Connecticut law.
Bankruptcy Judge Ann M. Nevins of New Haven, Conn., agreed with the debtor, upheld the exemption, and avoided the judicial lien. The district court affirmed, and so did the Second Circuit in an opinion on December 14 by Circuit Judge Robert A. Katzmann.
The appeal turned on the language of Section 522(d)(1), which permits someone electing federal exemptions to exempt her interest, currently up to $25,150, in real property “that the debtor or a dependent of the debtor uses as a residence.”
Notable, the section does not refer to a “homestead,” nor does it refer to a “principal residence.” Judge Katzmann said that “Congress’s choice of terminology was deliberate.”
On an issue where the courts are split, Judge Katzmann said the minority adopt a plain-meaning approach to statutory interpretation and see no requirement that the property be the debtor’s primary residence.
The majority follow state law by equating “residence” with “homestead.” In Connecticut, for example, a homestead exemption only applies to an owner-occupied property that is the debtor’s principal residence.
Under “traditional canons of construction,” Judge Katzmann said that “residence” subsumes both primary and nonprimary residences. A person can have several residences but only one domicile. Notably, Congress realized the difference between “primary residence” and “residence,” because Section 522(d)(1) uses “residence” while some other provisions in the Bankruptcy Code refer to “primary residence,” he observed.
The statutory text, Judge Katzmann said, “militates quite clearly in favor of interpreting the term ‘residence’ in § 522(d)(1) to include both primary and non-primary residences.” He upheld the exemption because the son was a dependent and had a residence in the home, although it was not his primary residence.
While some legislative history suggests that “residence” should be equated with “principal residence,” Judge Katzman said that the “legislative history is not so clear on this point, however, as to overcome the text of the statute.”
Judge Katzman affirmed the judgment of the district court.
A debtor may exempt her interest in a nonprimary residence under Section 522(d)(1), according to the Second Circuit. Furthermore, the federal exemption can be valid even if the debtor does not reside in the property, so long as a dependent does.
In other words, a home may be exempt under the federal exemptions even if the property would not qualify for a homestead exemption under state law.
A husband and wife purchased a home. Later, they divorced but continued owing the home jointly. The former husband lives in the home. The former wife lives nearby.
The couple share joint custody of their son. He lives primarily with the mother but spends several days a week in the father’s home. The home was subject to a judicial lien.
The wife filed bankruptcy, claimed an exemption in the home under Section 522(d)(1), and sought to avoid the judicial lien under Section 522(f).