- Case Type:
- Case Status:
- Reversed and Remanded
- 16-6028 (8th Circuit, Jan 24,2017) Published
- The 8th Circuit concluded that the bankruptcy court misapplied § 522(o) by reducing the debtors' homestead exemption by the value of the nonexempt assets converted into the homestead, rather than by that value of the homestead attributable to the nonexempt assets invested in it. Reversed and remanded.
- Procedural context:
- Chapter 7 trustee objected to debtors' homestead exemption under § 522(o), alleging that the debtors' homestead was augmented by nonexempt assets disbursed from a family bank account for various home improvements. The US Trustee filed a complaint objecting to the debtors' discharge under § 727(a)(2), (3), and (4). The bankruptcy court sustained the objection to homestead exemption and denied the debtors' discharge. The debtors appealed only the decision to reduce their homestead exemption.
- For nearly two years prior to filing chapter 7, the debtors (husband and wife) made multiple disbursements from their family checking account to pay for various improvements to their homestead. After filing bankruptcy, they valued their homestead at $200,000 in the Schedules of Assets and Liabilities, leaving $66,275 in equity after accounting for a mortgage against the property. In sustaining the trustee's objection, the bankruptcy court reduced the debtors' homestead exemption by the total amount disbursed from the nonexempt checking account to pay for home improvements. On appeal, the B.A.P. concluded that the bankruptcy court misapplied § 522(o), which clearly mandates the exemption by reduced only to the extent the value of the debtors' interest in the homestead was "attributable" to the nonexempt property used for that purpose. The analysis, therefore, required a comparison of the value of the homestead with and without the improvements to assess what portion of the homestead's value, if any, was attributable to the nonexempt assets.
- Federman, Saladino, and Nail.
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