The debtor claimed a homestead exemption in residential property. The chapter 7 trustee objected that the debtor was not entitled to the exemption because he lived in a camper located on the property and his grandson occupied the house.
As a preliminary matter, the state exemption statute protected “one parcel or item of real or personal property that the person or a dependent … uses as a residence.” As the court put it: “That’s it – no further detail or information as to type, size, shape, quality, etc., required. It simply covers property used as a residence.”
The trustee objected that the debtor was not entitled to an exemption for the house or land simply because he lived in a camper located on the property. Further, the debtor’s non-dependent grandson, not the debtor, resided in the house.
However, after outlining these basics, the court described the “story behind the litigation”:
- To be close to his family, the debtor paid $10,000 to buy a two-bedroom house (Laurel Ridge) across the street from his daughter using an unsecured credit union loan.
- The debtor placed his daughter on the deed as a matter of inheritance planning.
- At the time of purchase the house was not livable and required extensive repairs.
- The debtor intended to move into the house after completing repairs, but got sidetracked by heart surgery.
- In the meantime, his daughter’s family repaired the house with their own funds. The grandson moved in so that it could be insured, and lived there with his fiancée and their child.
- The debtor lived with his daughter for six weeks to recover following the heart surgery.
- Afterwards, since there was no room in the house, he moved into a two-bedroom travel camper with kitchen owned by his daughter that he parked near the house. The debtor paid $300 per month for use of the camper.
- Although the camper was on wheels and was not attached to the deck or porch of the house, it was hooked up to the house electric and water utilities, which were in the debtor’s name.
- The debtor did not have keys to the house. He knocked on the door, but just walked in if there was no answer.
- He used the house for meals, laundry and showers. In addition, he slept in the house on a couch when the camper pipes froze during the winter.
- The debtor received mail at a PO Box, while his grandson used the house mailbox.
- When the debtor filed bankruptcy, he listed Laurel Ridge on the schedule for “legal or equitable interests in any residence, building, land or similar property” with a value of ~$83,300. He also claimed a state homestead exemption.
- Claims totaling ~$70,800 were filed in the bankruptcy, including the unsecured claim of the credit union relating to the house purchase loan that had a remaining balance of ~$4,900.
The trustee argued that the debtor was not entitled to a homestead exemption since (1) he lived in the camper, not the house, and (2) in fact the house was occupied by the non-dependent grandson and his family. The court highlighted the consequences of the trustee’s position:
- The debtor would lose his interest in the property and the money he had spent to date on the purchase (~$5,000).
- The trustee would become co-owner with the debtor’s daughter. This was after her family invested time and funds to make the house livable. There was no explanation of how to account for these expenditures.
- Further, the trustee could seek to sell the interests of both the debtor and his daughter under section 363(h) of the Bankruptcy Code.
“In view of the snowball effect and lack of statutory support,” the court instructed the parties to provide any case law directly on point. Although the trustee found cases that were arguably similar, the court did not find them persuasive given the “complex circumstances of the case.”
The court reviewed applicable law, including (1) the general rule that exemptions are to be liberally construed in favor of debtors, (2) the fact that exemption laws exist to allow debtors to retain essential property and have a “fresh start,” (3) the objecting party has the burden of proof, (4) section 363(h) requires balancing benefits to the bankruptcy estate against the detriment to the co-owner, (5) to claim the state homestead exemption all a debtor has to show is that he has an interest in the property and the debtor or a dependent uses the property as a residence, and (6) neither the state statute nor the Bankruptcy Code defines “residence” for purposes of a homestead exemption.
Based on its review of the facts and law, the court concluded that the debtor had access to and use of all of the structures on the property (i.e. both the house and the camper), and all of these possessions were the debtor’s residence. Accordingly, the court overruled the trustee’s objection.
When all was said and done, the essence of the court’s decision was that, on the one hand: “Here, we have a family that has figured out a way to live close to and support each other, including the 78-year-old Debtor.” And on the other, the court found no compelling reason to rule in favor of the trustee, and it was reasonable to allow this result to stand.
This case highlights that a court decision can involve far more than a technical decision on the legal merits. Painting a picture that engages the judge can play a critical role.
Vicki R Harding, Esq.