Massachusetts Bankruptcy Court Allows Federal Homestead Exemption in Second Home

In the interesting yet simple case of in re Lawrence, No. 11-42045-MSH (Bankr.D.Mass. 2012) the court confronted the following uncontested facts.

On schedule C to their bankruptcy petition the Lawrences claimed an exemption in the Maine condominium, invoking the Massachusetts homestead exemption pursuant to Mass. Gen. Laws ch. 188 § 3. David M. Nickless, the chapter 7 trustee in this case, filed an objection to the debtors’ claimed exemption asserting that the Massachusetts homestead exemption did not protect out of state property. In response, the debtors sought and were granted leave to file an amended schedule C switching from state to federal exemptions and declaring the Maine condominium exempt under Bankruptcy Code § 522(d)(1).

As a preliminary matter, it warrants mention to state again that individuals in bankruptcy can choose between the federal and Massachusetts exemptions.

In contrast to the Massachusetts homestead, which protects up to $500,000 in home equity, but which was unavailable to the Maine property, the federal homestead protects $21,625 of equity in a property the debtor “uses as a residence.” The Trustee argued that the debtors’ main home was in Massachusetts and not in Maine at their vacation condo. The debtors had moved out of their Massachusetts property and into Maine a couple of days before filing their bankruptcy. This didn’t matter to Massachusetts Bankruptcy Judge Melvin Hoffman, however, who noted that people may have multiple residences–as highlighted by the multiple uses of the qualified “principal residence” in the Bankruptcy Code and elsewhere–and, consequently, whether the Maine home was the primary home of the debtors on the petition date was immaterial. However, the court delved a bit further and noted that “use” of the residence was also required by the statute’s plain language. Here, the debtors satisfied that test easily, but the court noted that “where a debtor had never used a residence prior to filing, bankruptcy courts have held that the residence may not be exempted under [the federal homestead].

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