Debtor Can Exempt Inherited Real Estate in Ch. 7 Case

Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...

By Diane Davis

Aug. 22 — A debtor who inherited property in Texas and plans to sell and move from the residence as soon as possible may claim that property as a homestead exemption, the Fifth Circuit held Aug. 17 ( Hennigan v. Smith (In re Smith), 2016 BL 266882, 5th Cir., No. 16-20241 Summary Calendar, unpublished 8/17/16 ).

Judges E. Grady Jolly, W. Eugene Davis, and Leslie H. Southwick of the U.S. Court of Appeals for the Fifth Circuit, in a per curiam unpublished decision, concluded that there was no evidence showing that when the debtor declared bankruptcy, he lacked the intention of making the property his homestead.

“The fact that a party desires to sell the property and move does not defeat the exemption,” the court said.

Debtor Robert T. Smith, an American citizen living in Australia, moved in and cared for his Aunt Barbara Christley in 2005, until she died in 2008. Under the terms of her will, the debtor was to receive her property, and 50 percent of the residual estate.

Attorneys Dan Hennigan and Delia Stephens represented the debtor in a dispute with the executor of Christley's estate.

After four years of litigation, the parties entered a settlement in which the debtor agreed to receive the property in exchange for forfeiting his 50 percent share of the residuary estate.

The property was later deeded to the debtor and one month later, the debtor filed his Chapter 7 case in which the debtor's nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors.

Property as Homestead?

The debtor claimed the property as his homestead and therefore exempting it from being liquidated.

Hennigan and Stephens, however, wanted to recover what they claimed from their contingency-fee contract with the debtor.

The bankruptcy court found that the debtor had established the homestead character of his property by living there for at least eight years and claiming the property as his homestead. The district court affirmed.

Homesteads are given a liberal construction, the Fifth Circuit said. “It is well settled in Texas that an individual who seeks homestead protection has the initial burden to establish the homestead character of her property,” the court said.

Although the court said it was clear that the debtor eventually intends to sell the property and move to Australia, there wasn't any evidence to show that at the time he filed for bankruptcy protection. Thus, the court would allow the homestead exemption.

Appellant Dan Hennigan, pro se, League City, Texas, represented appellants Delia Stephens, Dan Hennigan; Lester Raymond Buzbee III, Law Office of Lester R. Buzbee, III, Humble, Texas, represented appellee/debtor Robert T. Smith.

To contact the reporter on this story: Diane Davis in Washington at

To contact the editor responsible for this story: Jay Horowitz at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Bankruptcy Law News on Bloomberg Law