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Section 724 Treatment of certain liens.

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).