Bankruptcy Court Allows Exemption for Property Not Used as Principal Residence

By: Andrew G. Lizotte

In November 2016, we provided an update on a novel bankruptcy case addressing an individual’s right to exempt the value of their home under the Massachusetts homestead law.   Specifically, the case involved whether Massachusetts law could be applied to exempt the value of property located in another state (it can).  A Massachusetts bankruptcy court has recently addressed another novel issue pertaining to homestead issues – that is, whether a debtor may exempt the value of a home under the federal exemption scheme where the property does not serve as the debtor’s principal residence.

Massachusetts law allows a debtor to exempt up to $500,000 in value in a principal residence in which a debtor resides or intends to reside.  The federal exemption scheme, which is far less generous, allows a debtor to exempt up to $23,675 in value in real property that the debtor or a dependent “uses” as a “residence” (a debtor may need to use the federal exemptions, rather than Massachusetts state exemptions, if the federal exemptions provide more generous exemption rights on other assets, among other reasons).  In the recent case, the debtor identified her “residence” to the trustee as her apartment in Mendon where she stayed primarily because of its proximity to her medical providers.  The debtor sought to claim an exemption, however, in the family homestead in Swansea, which served as her parents’ primary residence.  The debtor stayed in Swansea frequently to care for her parents and intended to move to Swansea, as evidenced by among other things her search for medical providers closer to Swansea.  The Trustee challenged the debtor’s claim of exemption in the Swansea property because the debtor stated under oath that did not “reside” at the Swansea property.  The Court concluded that a debtor may have more than one “residence” and that occupancy, or use, of a residence must be evaluated based on the circumstances.  The debtor’s use of the Swansea premises (staying overnight frequently to care for her parents and leaving personal affects for her care and comfort), coupled with a clear intention to reside exclusively in Swansea that was delayed by her medical circumstances, was found to be sufficient to satisfy the requirements for exempting her equity in the Swansea home.  The Court liberally interpreted the exemption law and found that the debtor met her burden to establish “constructive use” of the Swansea property as a residence.

It would be interesting to see if the Court were to reach a similar result had the debtor sought to exempt a larger amount of equity in the Swansea property using the Massachusetts homestead law.  While the Massachusetts exemption law is limited to one’s “principal” residence, rather than merely a “residence” under the federal exemption scheme, the state homestead law is available if one not only resides but “intends to reside” at the property.  While Swansea arguably did not serve as the debtor’s principal residence, she did present strong evidence of her intent to vacate Mendon and make Swansea her sole abode.

The case is In re Mary Ann Broderick, case no, 14-42104-CJP from the United States Bankruptcy Court for the District of Massachusetts.