Homestead Accounts Not Applicable For Sale After Filing Bankruptcy

I spoke with a person currently involved in a Chapter 7 bankruptcy and is involved in a dispute with the Trustee over her homestead exemption. Prior to filing bankruptcy the debtor listed her house for sale. She filed Chapter 7 bankruptcy, on day of filing, she still resided in her house. She claimed the house as exempt homestead. After filing bankruptcy she sold the house. The Trustee is arguing that the house is not homestead because either the debtor intended to abandon home by putting it on the market or because the proceeds from the sale were not reinvested in another homestead.

Bankruptcy exemptions are determined on date of filing. If an asset is exempt when a debtor files bankruptcy the asset is not part of the bankruptcy estate and the debtor can do with the asset whatever he or she wants to do after the filing. In this case, the debtor occupied the subject property as her homestead on date of filing. If she sold the property after filing she can do what she wants with the sales proceeds. She does not have to reinvest the proceeds in a new homestead.

If, on the other hand, the house were sold prior to filing bankruptcy the sales proceeds would be exempt only if the debtor intended to reinvest the proceeds in a replacement homestead after the sale and on or after date of filing bankruptcy.

There are court decisions which have held that putting a house on the market does not constitute intent to abandon the house. This debtor’s listing of her house should not forfeit her homestead protection.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida