Debtor Can’t Claim Homestead Exemption in Vermont for Property LLC Owns

By Diane Davis

A debtor in Chapter 13 can’t claim a homestead exemption for property owned by a limited liability company in which that person is the sole member, the U.S. Bankruptcy Court for the District of Vermont held.

Frank Hewitt didn’t have legal or equitable interest in the property when Geico Indemnity Co.'s lien attached and, thus, he had no right to claim the exemption under Vermont law, Judge Colleen A. Brown wrote Nov. 8 on a question not previously addressed by the court ( In re Hewitt , 2017 BL 401264, Bankr. D. Vt., No. 16-11240, 11/8/17 ).

The court also found that Hewitt didn’t prove the value of the property or the validity of other liens. As a result, Hewitt acquired his ownership interest subject to Geico’s lien, the court said.

Under Vermont law, an individual may exempt up to $125,000 for a residence in bankruptcy. A debtor must show ownership interest and occupancy to claim the homestead exemption, the court said.

Hewitt resided at and paid all expenses for 55 acres of land and a camper in Vermont. Over the course of two Chapter 13 cases, he claimed the fair market value was between $260,000 and $300,000.

The title to the property changed hands several times. At one point, Hewitt transferred the property to Wild Apple Estates, LLC, of which Hewitt was the sole organizer, registered agent, and member. Later, Wild Apple Estates transferred the property back to Hewitt.

On the day Geico recorded its lien, however, Hewitt didn’t have title to the property in his own name, the court said.

Hewitt argued that he had an equitable ownership interest in the property so he could claim a homestead interest in it.

The court disagreed, noting that under Vermont law, an LLC is an entity distinct from its members. Members don’t own the property in their individual capacity, the court said. Thus, Hewitt didn’t have an ownership interest and can’t claim the homestead exemption, the court said. Since Hewitt didn’t acquire the property until after Geico recorded its lien, Hewitt’s exemption rights are subject to Geico’s lien, the court said.

Rebecca Rice, Cohen & Rice, Rutland, Vermont, represented Hewitt; Antonin Robbason, Ryan Smith & Carbine, Rutland, Vermont, represented Geico.

To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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