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Bankruptcy homestead exemption did not apply to deceased father's house

Under a Chapter 7 bankruptcy filing, homestead exemptions exist which may protect a filer's home, although there are limits to the amount protected.
 
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    January 04, 2014 /24-7PressRelease/ -- Under a Chapter 7 bankruptcy filing, homestead exemptions exist which may protect a filer's home, although there are limits to the amount protected.

To claim the federal homestead exemption, a debtor must show that the property is used by the debtor or a dependent as a residence. How a "residence" is defined legally may sometimes cause issues for a debtor. The United States Bankruptcy Court case of In re Stoner provides an example.

Caring for a sick father

The debtor had been living at his father's residence, due to his father's illness, for over a year prior to his bankruptcy. The debtor's bankruptcy petition was signed on January 7 and was filed with the court on January 12. In between those two events, the debtor's father passed away.

Nearly two years later, the debtor made amended filings and claimed an exemption from bankruptcy for his deceased father's property. Under his father's will, the debtor was a "contingent beneficiary"--that is, he would receive the house under the will, if other events occurred, such as him surviving his siblings, who also had partial interests like his in their father's house. Under these circumstances, the bankruptcy trustee--the person tasked with administering the bankruptcy--brought a motion seeking to bar the debtor from claiming a homestead exemption for his father's house.

Was it the debtor's residence?

A key question for the Bankruptcy Court was whether the debtor used his father's property as a residence within the meaning of the federal law. The court found that the law should be interpreted in light of the goal of the exemption: to protect a debtor's family home, equating the term "residence" under the federal law to "homestead" as defined under the state's law.

The legislative intent was that the residence exemption be reserved for real estate that a debtor truly uses as a homestead, requiring more than mere occasional or temporary occupancy. Although the debtor had been living at his father's residence for over a year prior to his bankruptcy, when he prepared his bankruptcy petition he listed a different address as his residence. The debtor then signed his petition approximately a month later, and made no effort to change his listed address. This suggested that, although the debtor was staying with his father in order to care for him, the debtor maintained a separate residence and did not have the intent to make the property his principal residence.

Moreover, the very purpose for which he was staying at his father's residence suggested that the debtor was residing there on a temporary basis, until his father became well or passed away. He also did not seek to amend his Chapter 7 bankruptcy filing for nearly two years.

Unfortunately, this led the court to conclude that the property was not the debtor's residence and he could not claim a homestead exemption.

Finding the best option for you

If you are considering filing for bankruptcy, whether under Chapter 7 or Chapter 13, it is crucial that you are represented by a bankruptcy attorney who can take into account all of your life circumstances and how those circumstances might change during the bankruptcy proceeding. While a concept like a "homestead exemption" may seem straight-forward on its face, there are limits and legalities which must be carefully considered. Seek a bankruptcy attorney who can help you determine the best options for getting you out from under your burden of debt.

Article provided by Scura, Mealey, Wigfield & Heyer, LLP
Visit us at www.scuramealey.com



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