McLeod Law Offices

This month, a ruling in a Chapter 13 case, the US Bankruptcy Court struggled with the issue of whether a bankruptcy debtor can retain their homestead rights if they have moved out of the home. Based on these interesting facts, the Bankruptcy Court ruled that the Debtors’ interests were protected.

The Facts
The Debtors were having difficulty making their monthly mortgage payments and opted to avoid foreclosure by placing their home on the market. They bought their home in 1998 and in 2000, they acquired their homestead by recording the required Declaration of Homestead at the local Registry of Deeds. By 2005, the Debtors found a buyer and had signed a purchase and sale agreement.

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Among the delightful changes BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005)made to the Bankruptcy Code was the “cap” on homestead exemptions. In Massachusetts, a homeowner can keep up to $500,000 in equity in their primary residence from the reach of creditors. BAPCPA capped homesteads to $125,000 if the “interest” in the residence was acquired within 1215 days of the filing of the bankruptcy petition. In two recent cases, Massachusetts homeowners found their homestead exemptions capped. Massachusetts homeowners thinking of filing bankruptcy need to keep reading.

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