Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
June 10 — A debtor who wasn't living at his home as his principal residence when he filed for bankruptcy can still properly claim a homestead exemption on the property, a bankruptcy court in New York held June 2 ( In re Denker-Youngs, 2016 BL 178309, Bankr. E.D.N.Y., No. 15-41069-cec, 6/2/16 ).
Judge Carla E. Craig of the U.S. Bankruptcy Court for the Eastern District of New York denied Chapter 7 Trustee Richard J. McCord's motion to disallow the debtor's homestead exemption.
“Exemption is an integral part of the fundamental bankruptcy goal of providing a fresh start, because it allows the exempted property to remain with the individual debtor and his or her family following the commencement of the bankruptcy proceeding,” according to , pt. II, ch. 62 (D. Michael Lynn et al. eds., 2015).
Exemption statutes are construed liberally in favor of the debtor, the court said.
Under Bankruptcy Code Section 522, a debtor may exempt from property of the bankruptcy estate property that is exempt under federal law or under applicable state law, unless state law only authorizes the debtor to claim state law exemptions, the court said. According to the court, New York is an “opt in state,” which means that debtors in New York may elect to claim either the federal or New York state exemptions.
Debtor Brian H. Denker-Youngs elected the New York state exemption scheme and claimed a $148,500 homestead exemption in property located in Huntington, N.Y., when he filed a Chapter 11 petition that was later converted to a Chapter 7. In Chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors.
The trustee objected to the debtor's homestead exemption because the debtor wasn't living at the Huntington property when the debtor filed his petition, and certain documents, including his tax returns, driver's license, bankruptcy petition, and voter registration, show a Brooklyn, N.Y., address for the debtor. According to the trustee, the Huntington property wasn't the debtor's principal residence.
The debtor contended that he is entitled to claim the homestead exemption in the Huntington property because it is his principal residence even though he moved out of the property several months prior to the commencement of his bankruptcy case in compliance with a state court order.
The debtor purchased the Huntington property with his spouse, Edward John Denker-Youngs, and they moved into the home in 2013. Later, after some marital strife, the state court entered an order barring the debtor from entering the Huntington property. As a result, when the debtor filed his bankruptcy petition, he wasn't residing at the Huntington property.
The debtor's “ouster from the Huntington” property doesn't prevent him from claiming a homestead exemption, the bankruptcy court concluded, citing In re Moulterie, 2008 BL 283782, 398 B.R. 501 (Bankr. E.D.N.Y. 2008), which involved a homestead exemption claimed in a marital residence by a divorcing debtor who had moved out before the commencement of the bankruptcy case. Further, in In re Smith, 57 B.R. 81 (Bankr. N.D.N.Y. 1985), the court concluded that New York courts wouldn't construe absence from the marital home pending final resolution of property rights to constitute abandonment of rights of residency or occupancy of a homestead under New York law, the court said.
The debtor's failure to change his address to the Huntington property on his driver's license, tax returns, and voter registration doesn't establish that the debtor's principal residence wasn't the Huntington property, the court said. Only one of the tax returns listing his Brooklyn address was filed during the period after the debtor and his spouse moved to the Huntington property, the court said. According to the court, the debtor's failure to change his address on a tax return doesn't establish that he didn't intend the Huntington property to be his principal residence.
The debtor's voter registration, driver's license, bankruptcy petition are insufficient to establish that the debtor didn't consider the Huntington property to be his principal residence on the bankruptcy petition date, the court said. The debtor's bankruptcy petition was filed after he moved out of the Huntington property as required by the court order, the court said. The debtor could have listed his residence as the Huntington property and his mailing address as the Brooklyn property, but his failure to do this didn't show that he intended to reside permanently at the Brooklyn property, the court said.
The court also rejected the trustee's argument that the debtor should be judicially estopped from claiming a homestead exemption because he filed an affidavit in another action that he commenced with his spouse in state court in which he stated that his residence was in Brooklyn.
“Judicial estoppel prevents a party who has made a statement during a legal proceeding from subsequently taking a contrary position, simply because his interests have changed, especially if the contrary position prejudices the party who has acquiesced in the position formerly taken by him,” the court said.
Although the debtor's statement seems to be inconsistent with his claim that Huntington is his principal residence, there is no evidence that the state court adopted this statement, the court said. The court also found no evidence indicating that the debtor would derive an unfair advantage or impose an unfair detriment on the estate if he was permitted to claim a homestead exemption in the Huntington property.
Richard J. McCord., Certilman Balin Adler & Hyman, East Meadow, N.Y., represented himself as Chapter 7 Trustee; Brian H. Denker-Youngs, Brooklyn, N.Y., represented himself as debtor.
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