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Exemptions, section 522

In re Colliau (May 20, 2016)

In this case, the chapter 7 trustee and a creditor argued that the Debtors’ homestead exemption should be reduced pursuant to 11 U.S.C. § 522(o) because the Debtors used nonexempt property to purchase their home with the intent to hinder, delay or defraud creditors. The Court found that the Debtors did not purchase the homestead with such intent, but found that they made cosmetic repairs to the homestead shortly before filing bankruptcy with the intent to hinder, delay or defraud creditors. The Court therefore reduced the value of the Debtors’ equity in the homestead in accordance with § 522 by the amount of the cosmetic repairs. The Court then imposed an equitable lien on the homestead to secure the estate’s interest in the Debtors’ equity. The Court also held that the snapshot rule prevented the Trustee from keeping the case open until the Debtors’ equity in their homestead appreciated above the equity cap set by 11 U.S.C. § 522(p).

WL Cite: In re Colliau, 522 B.R. 158 (Bankr. W.D. Tex. 2016).

In re Parsons (Dec. 12, 2014)

The Debtors claimed their homestead as exempt under Texas law with a value of $0 as the property was subject to liens totaling $341,582 with an IRS lien of $330,000. No objections were raised on the Debtors’ exemptions. The Debtors then converted to a chapter 7 case and reached a settlement with the IRS that reduced the claim to $140,000. The Debtors filed amended schedules in the converted chapter 7 case, changing the value of the homestead exemption from $0 to $230,362. The chapter 7 trustee objected and argued that the Debtors had nothing to exempt because there was no equity in the home. The trustee sought to deny the homestead exemption and use section 724(b), which only applies to property of the estate, to sell the homestead and use the proceeds of the sale to pay his administrative expenses. The Court found that the Texas homestead exemption was valid because the Debtors have equity in their homestead due to their settlement with the IRS. Alternatively, the Court found that equity is not necessary to claim the Texas homestead exemption because the exemption extends to the property itself, regardless of value. Accordingly, the Court held that the trustee’s claim under section 724(b) did not apply.

In re Parsons, 530 B.R. 411 (Bankr. W.D. Tex. 2014).

In re D’Avila (Aug. 21, 2013)

The Debtor and her husband executed a contract to sell their home before filing a case under chapter 7 of the Bankruptcy Code. In her bankruptcy schedules, the Debtor claimed the home as exempt homestead property. After filing bankruptcy, the Debtor closed on the sale of the home and received proceeds from the sale. The trustee argued the proceeds were not exempt because she did not reinvest them into a new homestead within six months of the sale. The Court rejected the trustee’s contention and held that the Debtor was entitled to exempt the proceeds of the sale because the Debtor owned the property outright when she filed for chapter 7 relief. The Court distinguished the facts of this case from the facts in In re Zibman, 268 F.3d 298 (5th Cir. 2001) because the debtor in that case had sold the homestead prior to bankruptcy, and so the debtor held proceeds and not property on the date the bankruptcy was filed. The Court noted that the Texas homestead exemption is not limited in time, and distinguished the case from the district court decision in Frost v. Viegelahn (In re Frost), No. 5:11–cv–719, Dkt. No. 11 (W.D.Tex. July 9, 2012), on the grounds that Frost was a chapter 13 case. But see Frost, 744 F.3d 384 (5th Cir. 2014) (holding that proceeds from the post-bankruptcy sale of an exempted homestead lost their exempt status if they were not reinvested within six months; and the language used by the Fifth Circuit suggests that the result would be the same in a chapter 7 case).

WL Cite: In re D’Avila, 498 B.R. 150 (Bankr. W.D. Tex. 2013)

 

In re See (July 14, 2015)

The Debtor owned options that allowed him to buy three tracts of property during the six months following his mother’s death. For many years, the Debtor had leased the same tracts of land from his mother. In his bankruptcy schedules, the Debtor exempted both the option and the leases as homestead property. The Trustee objected to the Debtor’s exemption of the options because they were future interests, but did not object to the exemption of the leases. The Court found that the options were not severable from the leases and so, since the leases were exempt, the options were validly exempted.

WL Cite: Unavailable