Tuesday, July 19, 2011

FYI: 6th Cir BAP Allows Homestead Exemption Under Ohio Law, Despite Undisclosed Contract to Sell Home

The Bankruptcy Appellate Panel of the Sixth Circuit recently reversed a
lower court ruling, and held that debtors in bankruptcy proceedings were
entitled to claim a homestead exemption under Ohio law, even though they
failed to disclose in their bankruptcy petition that they had a binding
contract to sell their home, and misrepresented in their bankruptcy
filings that they intended to remain in the home.

A copy of the opinion is available at:

A married couple ("debtors") entered into a binding contract to sell their
home, and then filed a petition for relief under chapter 7 of the
Bankruptcy Code. Debtors claimed a homestead exemption in the amount of
$40,400. They did not disclose the existence of the home-sale contract in
their petition, and stated that they intended to remain in the home on
their Chapter 7 Individual Statement of Intention. The debtors then sold
their home, seeking to retain the $40,400 exemption amount.

The Trustee objected to the homestead exemption, arguing that the
exemption was improper because debtors did not intend to remain in the
home. The bankruptcy court sustained the Trustee's objection. The
debtors appealed.

As you may recall, Ohio Rev. Code § 2329.66(A)(1) provides for an
exemption of $20,200 per person "in one parcel or item of real or personal
property that the person…uses as a residence." The statute does not
address whether debtors must intend to continue to use the property as a
home post-petition to qualify for a homestead exemption.

Because no Ohio state court had considered whether debtors must intend to
occupy a property in the future to claim a homestead exemption, the Panel
based its decision largely on principals of statutory interpretation. It
began by noting that "Ohio courts follow the rule that exemption statutes
are to be construed liberally in favor of the debtors…." Further, "[i]n
construing statutes, it is the duty of the courts to give effect to the
words used, not to…insert words not used."

The Panel also surveyed the decisions of bankruptcy courts interpreting
Ohio law on the instant issue, and found inconsistent results. However,
it observed that "it is a well-established principle" that a debtor's
right to exemptions are determined as of the day the petition for
bankruptcy is filed.

Based on the principles discussed above, the Panel held that the plain
language of Ohio Rev. Code § 2329.66(A)(1) "does not permit inquiry into
the Debtors' intent to continue to use their property as a residence."

Instead, the Panel held that "all that is required" is that the debtors
own the property and occupy it as their principal residence at the time
they filed for bankruptcy. Because in the Panel's view the debtors
clearly met that requirement, the Panel found that they were entitled to a
homestead exemption. It therefore reversed the order of the lower court.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com

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