IS ABANDONED HOMESTEAD EXEMPT IN BANKRUPTCY

The situation we are going to discuss involves a Chapter 7 bankruptcy debtor who has abandoned her residence which has substantial equity but subsequently claims her abandoned residence as exempt homestead in her bankruptcy. Can she have her cake and eat it too? To illustrate, debtor left the marital residence, the homestead in 2005. Even though debtor left her husband and marital residence in 2005, she is still married to husband because she has not divorced him. The equity in the residence is now $100,000. She owes $80,000 of credit card debt. She files for Chapter 7 relief today. Will the Chapter 7 trustee attempt to sell her abandoned residence even though she claims it as exempt homestead? Of course the trustee will try to get the house, but will his attempt to get the house be successful?

 If debtor lived in Massachusetts, the trustee would fail. In Re Goulakos, the Chapter 7 debtor moved out of the marital home and moved into a house she purchased. In June 2004, she sold her house to her son, but continued to live there. She was still living there when she filed for bankruptcy in December 2010. The debtor's husband filed a declaration of homestead for the former marital home in July 2010. The debtor never recorded a declaration of homestead for either property. Schedule A revealed that the debtor and her husband owned their former marital residence as tenants by the entirety. There was $145,500 equity in the property, which she claimed as her exempt homestead even though she had not lived in the house for 10 years, and had no plans to move back. She could not stand her husband who voted for Obama, it appears.

 The trustee objected because the debtor had not filed a homestead declaration for the property, and had abandoned her homestead interest in it. The court overruled the objection because: 1) The couple was still married, 2) The debtor's husband lived in the house and declared it as the family's exempt homestead, and 3) The debtor, as a qualified member of her husband's family, was entitled to claim the exemption. "The version of the Homestead Act applicable to this matter is clear: only one owner may acquire a homestead for himself and his family; that owner must rightfully possess and occupy, or intend to occupy, the residence; and a single family is entitled to only one homestead (Mass.Gen.Laws ch.188§1). Crucial to §1 is that the occupancy requirement is limited to the 'acquisition' of a homestead," the court said. "Further, the individual who claims the homestead exemption need not be the one who filed the declaration of homestead; a spouse or child may also claim the exemption by way of the family member's homestead declaration." Under circumstances such as these, the court said "even the unequivocal abandonment of the property by [the debtor] cannot terminate the homestead estate and her right to the protection afforded by it."

If debtor lived in California, things may turn out differently. If my recollection does not fail me, in California, debtor's intent to treat the property as residence is controlling. For instance, in a recent case, client operated a business in Santa Barbara, but never abandoned her residence in Los Angeles. She rented a portion of her residence in Los Angeles but nevertheless kept a room for herself when she came back to Los Angeles, every weekend. Her Los Angeles residence had equity of $150,000 which she exempted in full because she was 65 years old on the date that her case was filed. The trustee did not question the exemption. Thus, if Goulakos lived in California, instead of Massachusetts, she would lose her house to the trustee because her intent was to abandon her residence ten years before she filed for bankruptcy relief. On the other hand, if she had decided to live in her residence before she filed for bankruptcy, her intent to return to the marital residence would make her exemption claim valid.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.