A chapter 13 debtor is stuck with the homestead declaration made on filing, even if the case is later converted to chapter 7, according to District Judge Robert N. Scola, Jr. of Miami, who upheld Bankruptcy Judge A. Jay Cristol.
The holding is based on the facts of the case and may not be as broad as it seems.
A couple filed a chapter 13 petition, scheduling the home where they lived as their homestead. Less than 180 days after filing, the wife’s mother died, bequeathing her an apartment. However, the debtors continued living in their home for about two years, until it was foreclosed. They then moved into the bequeathed apartment.
Almost six years after filing, the couple converted the chapter 13 case to chapter 7 and amended their schedules to claim the bequeathed apartment as their homestead. Judge Cristol denied the exemption and was upheld on October 1 by Judge Scola.
For Judge Scola, the appeal entailed a straightforward interpretation of statutes.
First, of course, the bequeathed apartment was deemed property of the chapter 13 estate as of the original chapter 13 filing date by virtue of Section 541(a)(5)(A), because the bequest occurred within 180 days of filing. Next, the bequeathed apartment became property of the chapter 7 estate under Section 348(f)(1)(A).
Although the bequeathed apartment would now qualify for a Florida homestead exemption, “this does not mean that it qualifies as an exemption they can assert in the instant bankruptcy proceeding,” Judge Scola said.
Why? Because “the availability of exemptions is determined as of the commencement of a case,” Judge Scola said.
And why is that true? Because, Section 522(b)(3)(A) provides that exempt property is “property that is exempt under Federal law . . . or State or local law . . . on the date of the filing of the petition . . . .”
On the chapter 13 filing date, the couple could not have claimed an exemption in the bequeathed apartment because they did not own it at the time. Furthermore, Florida requires “actual occupancy” for a homestead exemption.
Because the couple could not have claimed an exemption in the bequeathed apartment on the chapter 13 filing date, Judge Scola affirmed Judge Cristol and held they were not entitled to an exemption in the apartment in chapter 7.
Observations
The opinion should not be read to mean that anyone who files in chapter 13 is prohibited from buying a new home. Typically, states allow selling a homestead and preserving the exemption in proceeds so long as the seller buys a new homestead within a prescribed amount of time.
If the facts were different, the debtors might have been able to exempt the bequeathed apartment. They could have argued that the foreclosure of their original home was a sale entitling them to claim a homestead exemption elsewhere.
Unfortunately, they did not amend their schedules to disclose the bequest. Instead, they waited five years to disclose the bequest when they claimed an exemption on conversion to chapter 7.
Had they abandoned the original home on receiving the bequest, they might have succeeded in claiming an exemption in the bequeathed apartment had they moved into the deceased mother’s unit.
They tried to have the best of both worlds by keeping the original home and enjoying the value of the bequest without disclosure. There were no equities to underlay an exemption in the bequeathed apartment.
Bankruptcy has gobs of technicalities. Without advice from counsel, debtors are likely to slip up, with bad results.
A chapter 13 debtor is stuck with the homestead declaration made on filing, even if the case is later converted to chapter 7, according to District Judge Robert N. Scola, Jr. of Miami, who upheld Bankruptcy Judge A. Jay Cristol.
The holding is based on the facts of the case and may not be as broad as it seems.
A couple filed a chapter 13 petition, scheduling the home where they lived as their homestead. Less than 180 days after filing, the wife’s mother died, bequeathing her an apartment. However, the debtors continued living in their home for about two years, until it was foreclosed. They then moved into the bequeathed apartment.
Almost six years after filing, the couple converted the chapter 13 case to chapter 7 and amended their schedules to claim the bequeathed apartment as their homestead. Judge Cristol denied the exemption and was upheld on October 1 by Judge Scola.
For Judge Scola, the appeal entailed a straightforward interpretation of statutes.