Non-Debtor Spouse Not Entitled to Compensation for Forced Sale

    On October 13, 2014, the United States Court of Appeals for the 5th Circuit distinguished its earlier ruling this year in In re Kim, 748 F.3d 647 (5th Cir. 2014) that a non-debtor spouse could be entitled to compensation from the forced sale of a property to which a homestead right attaches and held that the non-debtor spouse was not entitled to just compensation because the homestead was acquired after the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). See Thaw v. Moser, __F.3d___(Case No. 14-40108, October 13, 2014).
    Debtor and spouse purchased a home for $1,750,000 in October 2009 and one month later executed a contract for deed increasing the purchase price to $2,150,000. In the following months, Debtor made monthly payments that were more than twice the amount of the required monthly payments and 18 months later eventually closed on the purchase of the home. Subsequently, Debtor filed Chapter 7 and claimed that the home was exempt from bankruptcy estate but subsequently conceded that the exemption was capped at $146,500. Trustee objected to the exemption and filed an adversary proceeding. Following a hearing, the bankruptcy court held that Debtor’s exemption should be reduced to $0.00 because of Debtor’s attempt to hinder, delay and defraud creditors. The non-debtor spouse claimed she had a separate vested homestead right not subject to limits of 11 U.S.C. 522(o) and (p). Bankruptcy court held that non-debtor spouse did not have a separate and distinct exempt homestead exemption in the home that would entitle her to compensation or prevent the sale by the trustee. The district court affirmed.
    Timing is everything. The key to In re Kim and the United States Supreme Court decision it is based on (United States v. Rodgers, 461 U.S. 677, 697 n.24 (1983)) is the time period in which the homestead interest is acquired. The opinions in this blog are solely the author’s and any comments or suggestions should be sent to john@jrjoneslaw.com.
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