Not likely. However, in a ruling last month by the U.S. Circuit Court of Appeals for the Eighth Circuit, a decision came down that may affect how homestead law evolves. The ruling expanded the notion of what is exempt under the homestead law to include personal property. How will Massachusetts bankruptcy law be impacted? What are Boston bankruptcy lawyers advising about the Massachusetts Homestead Act? This is what we explore in our blog http://www.bostonbankruptcylawyerblog.com/ today.
Let’s look at the North Dakota case first. The U.S. Bankruptcy Code allows each state to have its own homestead limit. In North Dakota, when a debtor files for bankruptcy protection, he or she may protect up to $100,000 of equity in their home, thereby “homesteading” that property. In the case handed down by the Appeals Court, the debtor, Lawrence Danduran, sold a home in New Rockford, North Dakota, in 2009, for $225,000. Included in the sale was personal property, physically in the home, including a pool table, a hot tub and audio visual equipment. Such items are often sold with a home. In New Rockford, which is in southwestern North Dakota, it is likely that this is just as common as in Massachusetts home sales – those moving, for whatever reason, don’t need all of the personal property which fits nicely into the home. Mr. Danduran paid off his mortgage with the sale proceeds and put the rest of the money into a bank account. It is that sum, $87,500 that became the issue in this case.
The trustee, appointed by the state bankruptcy court to oversee personal bankruptcies, objected to the $87,500, saying that $7,700 was “personal property” proceeds, from the sale of the pool table etc., and that issue to be decided was heard by the U.S. Bankruptcy Court for the District of North Dakota. That decision was appealed to the U.S. Bankruptcy Appellate Panel (BAP) for the 8th Circuit reversed the judge’s decision. The BAP found that Mr. Danduran had shown “sufficient indicia” of combining his non-exempt property into his homestead property by putting all of the proceeds into the same bank account.
The Court of Appeals, however, found that there were no specific findings of how the funds were mixed – was the payment to pay off the mortgage from the sale of the real property, the personal property, or a combination. Because the Court never addressed this issue, the monies were not clearly identified, and therefore, exempt.
How would this work in Massachusetts? There are two ways to use the Massachusetts homestead law. First, Massachusetts bankruptcy attorneys may advise to use the federal exemptions, United States Code, Section 522(d)(1). That law, which exempts $20,000, was the subject of our blog article regarding the simple approach to Massachusetts homestead law. If you have more than $20,000 of equity in your home, you may be advised to use the state law. The new Massachusetts homestead law, if utilized properly, exempts up to $500,000 in equity from creditors in bankruptcy. Can you include personal property in Massachusetts? Not yet. But what if you had a pool table and a hot tub in your home? If they were built in, they may very well be exempt.
I might not advise Massachusetts bankruptcy clients to test the North Dakota law: it could be an expensive and unsuccessful proposition. However, the change in the law is often gradual, and the sale of a valid homesteaded home, along with some personal possessions that are combined with the sale, and the money is not segregated, could be where those waters are tested.