Federal Homestead Exemption Applies to Property Debtor’s Dependent Lives on Part-Time

Posted by NCBRC - October 30, 2019

The creditor’s judgment lien impaired the debtor’s federal homestead exemption even though she did not reside on the property, where her dependent son lived on the property part-time with the debtor’s ex-husband. Donovan v. Maresca, No. 18-1146 (D. Conn. Sept. 30, 2019).

When Melissa Maresca filed for chapter 7 bankruptcy, her divorce attorney held a judgment lien against real property Ms. Maresca owned with her ex-husband. Although Ms. Maresca did not use the property as her residence, her ex-husband resided there and her dependent son used the home as his part-time residence. In her bankruptcy, Ms. Maresca elected to use the federal exemptions and she sought to avoid the lien as impairing her federal homestead exemption under section 522(f). The creditor objected arguing that because Ms. Maresca did not actually reside on the property, she was not entitled to use the homestead exemption. The bankruptcy court granted Ms. Maresca’s motion to avoid the lien.

Section 522(d)(1) provides that a debtor may exempt her “aggregate interest, not to exceed $15,000 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence . . .” The question on appeal related to the phrase “uses as a residence.” The district court began by reviewing the two views courts have taken when addressing the homestead exemption in instances where the debtor does not actually reside on the property.

The majority “state law” approach, propounded by the creditor, treats the federal exemption in accordance with state homestead law under which the property must be the debtor’s primary residence. In In re Stoner, 487 B.R. 410, 419–20 (D.N.J. 2013), the court justified imposition of a residency requirement as harmonizing with Congress’s intention to protect a bankruptcy debtor from losing the basic necessities of life. Applying the federal homestead exemption to property the debtor does not live in, the creditor argued, would expand the exemption beyond congressional intent.

The minority “plain meaning” approach, endorsed by the debtor, treats the federal exemption on its own terms. While Congress referred to “principal residence” in several provisions of the Code, its reference in section 522(d)(1) only to “residence” suggests that Congress did not intend to require that the residence be the principal residence of the debtor or her dependent.

The district court agreed with the bankruptcy court and the debtor that the minority view was the correct reading of the exemption provision. The court noted that in Phillips v. Phillips, 2004 WL 503905, at *3 (Conn. Super. Ct. Feb. 25, 2004), the state court recognized that its homestead residency requirement differed from the federal homestead exemption in that the state homestead law has a debtor residency requirement while the federal homestead exemption does not. In addition, other bankruptcy courts in the district, such as In re Reed, 331 B.R. 44, 46 (Bankr. D. Conn. 2005), and Matter of Holyst, 19 B.R. 14, 15 (Bankr. D. Conn. 1982), have not imposed a principal residency requirement on the federal homestead statute.

Having adopted the minority “plain meaning” approach, the court affirmed the holding of the bankruptcy court. The creditor has appealed the decision to the Second Circuit Court of Appeals, No. 19-3331.

Maresca D Conn Sept 2019


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