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15.2.8 Preexisting Debts and Advance Filing Requirements

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  5. 15.2.8 Preexisting Debts and Advance Filing Requirements

15.2.8 Preexisting Debts and Advance Filing Requirements

Some states do not protect a homestead against debts which pre-date the acquisition of the homestead.140 The homestead exemption may, however, continue as to debts incurred during ownership of a former homestead, if the proceeds of its sale were used to purchase the debtor’s current home.141 A debt incurred after the effective date of a homestead exemption statute will be subject to the homestead law, even if it is incurred pursuant to a line of credit that pre-dated the statute.142 Courts have rejected arguments that a delay between the time a marriage is dissolved by divorce and the time the home is awarded to one of the spouses creates a gap that makes the home subject to debts incurred during the marriage.143

Vermont makes its homestead exemption inapplicable to debts that pre-date the debtor’s formal filing of a homestead declaration with the recorder of deeds, except that the exemption will carry over to a new homestead purchased with proceeds of the old homestead.144 This was formerly the rule in Massachusetts for all homestead exemptions,145 but amendments effective in 2011 make the basic homestead exemption automatic. A filing is necessary only for an enhanced exemption for older or disabled homeowners.146 California also provides enhanced protections to homeowners who have filed a formal declaration.147 Idaho makes an exception for preexisting debts, but requires a formal declaration only for land on which the debtor does not yet reside but is preparing for homestead use.148

Virginia enforces a much less onerous filing requirement. In order to exempt a homestead or certain personal property, Virginia requires the debtor to file a homestead deed prior to the execution sale of the property or, in the case of bankruptcy, within five days after the first meeting of creditors.149 Other states do not require any filing in order to protect the homestead.150

Some courts have construed statutes that increase the amount of the homestead exemption to apply to debts incurred before the change.151 Other states, however, refuse to apply a homestead exemption, or an amended version of it, to debts that arose before its effective date.152 The result may be different in bankruptcy.153

Footnotes

  • 140 In re Hewett, 576 B.R. 790 (Bankr. D. Vt. 2017) (Vermont’s preexisting debt exception bars exemption of home owned by LLC on date debt was incurred, and transferred to debtor before the petition date); In re Harle, 422 B.R. 310 (Bankr. M.D. Fla. 2010) (judgment lien that attached before debtors occupied new home took priority over homestead); In re Malatek, 2009 WL 3754234 (Bankr. N.D. Iowa Nov. 9, 2009) (fact issue whether land was homestead when debt incurred; exemption denied when, at time debt incurred, husband “temporarily staying” on property, doing repairs to make it habitable, while wife continued to reside in old home); In re Harwood, 404 B.R. 366 (Bankr. E.D. Tex. 2009) (homestead exemption does not protect against lien that attached before property became homestead), aff’d on other grounds, 427 B.R. 392 (E.D. Tex. 2010); In re Lewis, 400 B.R. 417 (Bankr. D. Vt. 2009) (bankruptcy law does not preempt provision of state homestead law that makes it inapplicable to preexisting debt); In re Whelan, 325 B.R. 462 (Bankr. M.D. Fla. 2005) (judgment lien, recorded against debtors who owned no real property, attached to homestead purchased four years later); In re Allen, 301 B.R. 55 (Bankr. S.D. Iowa 2003) (debtors owned and lived in House A, then bought and moved to House B while renting out House A, then sold House B and moved back to House A; homestead exemption did not protect House A against debt incurred while debtors lived in House B); In re Estad, 295 B.R. 905 (Bankr. D. Minn. 2003) (did not protect against lien that attached while new house under construction; not homestead until family actually moved in); In re Norkus, 256 B.R. 298 (Bankr. S.D. Iowa 2000) (Iowa homestead exemption does not protect against debts incurred before homestead acquired); Kamerick v. Marion Cty. Bank, 2003 WL 23006949 (Iowa Ct. App. Dec. 24, 2003) (wife’s guarantee of farm loan before she acquired homestead was a preexisting debt not protected by homestead exemption); Garcia v. Kentucky Employers Mut. Ins. Co., 2009 WL 3326807 (Ky. Ct. App. Oct. 16, 2009) (Ky. Rev. Stat. Ann. § 427.060 denies homestead exemption if debt or liability existed before purchase of property or erection of improvements thereon). See also In re Homonoff, 261 B.R. 551 (Bankr. D.R.I. 2001) (bankruptcy law uses exemptions as of filing date even though Rhode Island statute denies homestead protection against debts that pre-date the enactment of the homestead exemption statute). But see In re Rose, 2012 WL 1492338 (Bankr. D. Mont. Apr. 27, 2012) (no preexisting debt exception to Montana homestead exemption). But cf. In re Cole, 559 B.R. 919 (Bankr. M.D. Fla. 2016) (homestead taken by inheritance is protected against preexisting debts of heir).

  • 141 See, e.g., In re Takes, 478 F.3d 902 (8th Cir. 2007) (Iowa law) (new homestead exempt insofar as purchased with exempt proceeds of former homestead that pre-dated the debt but non-exempt as to balance of purchase price); In re Winke, 2016 WL 3134376 (Bankr. S.D. Iowa May 26, 2016) (new homestead exempt from preexisting debt only up to amount of net proceeds of old homestead invested in new homestead; when $53,000 net proceeds used as down payment on $280,000 home, exemption limited to $53,000); In re Patterson, 482 B.R. 755 (Bankr. D. Vt. 2012) (new home that was purchased with proceeds of old home is exempt as to preexisting debt; when couple divorced, wife received marital home and debtor husband received a package of other assets, which were the proceeds he used to pay for new home); In re White 293 B.R. 1 (Bankr. N.D. Iowa 2003) (Iowa homestead exemption does not protect against preexisting debts but may be transferred from one residence to another; no interruption in homestead here, even though debtors lived briefly in an apartment between selling one house and purchasing the next). See also In re Larsen, 2011 WL 4621556 (Bankr. S.D. Iowa Sept. 30, 2011) (transfer of home from fee simple ownership to estate planning trust was mere change in form of ownership; debt that accrued between time of purchase of house and transfer to trust could not attach to homestead); In re Meyer, 392 B.R. 416 (Bankr. N.D. Iowa 2008) (new homestead remains exempt up to value of former homestead, even if proceeds of old homestead used to pay off business debt and new homestead purchased with proceeds of personal injury settlement); AgVantage FS v. Western Farming, Inc., 803 N.W.2d 672 (Iowa Ct. App. 2011) (homestead continued uninterrupted when debtors sold homestead and used proceeds to purchase land and a modular home in which they planned to reside; new parcel was homestead even though home was not ready for occupancy). But cf. In re Shirley, 472 B.R. 19 (B.A.P. 8th Cir. 2012) (Iowa law) (when divorcing debtor was ordered out of marital home and bought new home with funds provided by mother, new home could be sold for debt that preceded purchase); In re McDonald, 2016 WL 1238832 (Bankr. N.D. Iowa Mar. 29, 2016) (new homestead not protected from preexisting debt; old homestead was underwater so there were no net proceeds); SBAM Partners v. Cheng Min Wang, 79 Cal. Rptr. 3d 752 (Cal. Ct. App. 2008) (homestead does not protect against judgment lien recorded before purchase of homestead, when homestead not purchased with proceeds of former homestead). See generally § 13.3.2, supra (exemption for proceeds of sale of exempt property).

  • 142 Alessandro v. People’s Bank (In re Alessandro), 254 B.R. 521 (Bankr. D. Conn. 2000) (Connecticut’s new homestead statute, which applies prospectively only, applies to credit extended after its effective date on preexisting line of credit that was terminable at will); In re Caraglior, 251 B.R. 778 (Bankr. D. Conn. 2000) (Connecticut homestead exemption protects against debts for balances accrued after its effective date on credit cards issued before that date).

  • 143 Aasen v. Macbride, 2017 WL 6567662 (Minn. Ct. App. Dec. 26, 2017) (wife’s homestead exemption continued uninterrupted during period between partial judgment dissolving marriage and final judgment awarding property to her; there was no gap during which lien for debts incurred during marriage could attach); Deutsche Bank Nat’l Tr. Co. v. Pike, 2017 WL 3309681 (D.N.H. Aug. 1, 2017) (wife’s interest in homestead continued uninterrupted between time divorce decree awarded her the property and the date when she received deed (three weeks later), so there was no gap during which lien for debts incurred during marriage could attach), aff’d, 916 F.3d 60 (1st Cir. 2019).

  • 144 Vt. Stat. Ann. tit. 27, §§ 107, 109.

  • 145 See In re Perry, 357 B.R. 175 (B.A.P. 1st Cir. 2006) (Mass. law) (homestead declaration must be filed before bankruptcy petition; when it was impossible to tell which filed first, because clerks’ time stamps showed same minute, principle of liberal interpretation applied and exemption allowed); ClearOne Commc’ns, Inc. v. Chiang, 717 F. Supp. 2d 142 (D. Mass. 2010) (Massachusetts exception for preexisting debts applies only to judgment entered before homestead filed; homestead declaration filed after verdict but before entry of judgment protected property against judgment debt); In re Guido, 344 B.R. 193 (Bankr. D. Mass. 2006) (second mortgage took priority over homestead rights when it was executed before filing of homestead declaration but not recorded until after); In re Vizard, 327 B.R. 515 (Bankr. D. Mass. 2005) (homestead exemption lost when homestead conveyed to wife from husband and wife without reservation of homestead); In re Govoni, 289 B.R. 500 (Bankr. D. Mass. 2002) (no homestead exemption for contiguous lot that contained home’s septic system, because debtor failed to include that lot in homestead declaration); Shamban v. Masidlover, 705 N.E.2d 1136 (Mass. 1999) (disabled person who filed declaration of homestead claiming $200,000 exemption, but failed to include statutorily required evidence of disability, could claim only standard $100,000 exemption).

  • 146 Mass. Gen. Laws ch. 188, §§ 1, 2, 4.

  • 147 Smith v. James A. Merrill, Inc., 75 Cal. Rptr. 2d 108, 111 (Cal. Ct. App. 2005) (declared homestead exemption has priority over judgment lien where abstract of judgment is recorded after the homestead declaration); Kim v. First Fed. Bank, 2002 WL 1579602 (Cal. Ct. App. July 17, 2002) (no declared exemption when homestead declaration was recorded after judgment lien had already attached; automatic exemption does not protect from sale pursuant to mortgage or deed of trust; sale proceeds not exempt).

  • 148 Idaho Code §§ 55-1004, 55-1005.

  • 149 Va. Code Ann. §§ 34-6, 34-14, 34-17. See In re Cambre, 463 B.R. 340 (Bankr. W.D. Va. 2012) (homestead deed invalid as to real property because filed in the wrong county; invalid as to proceeds because it claimed only real property); In re Strickland, 2010 WL 1332657 (Bankr. E.D. Va. Mar. 30, 2010) (Virginia law does not provide for filing of revised homestead deed; when debtors exempted CD used to secure home loan, but not the heavily encumbered home, no exemption for surplus resulting from sale of CD and home); In re Connor, 408 B.R. 88 (Bankr. W.D. Va. 2009) (exemption lost when it was filed in wrong county and second attempt was untimely; five-day deadline includes weekends); In re Ahmed, 411 B.R. 537 (Bankr. E.D. Va. 2009) (exemption lost when paperwork was mailed within five-day deadline but received thereafter); In re Diab, 2008 WL 4588018 (Bankr. E.D. Va. Oct. 14, 2008) (failure to timely file Virginia homestead deed, which applies to personal as well as real property, results in loss of exemption); In re Cook, 2007 WL 2238397 (Bankr. E.D. Va. July 31, 2007) (debtor lost opportunity to exempt her tax refunds when she failed to file homestead deed within five days after meeting of creditors); In re Alley, 354 B.R. 783 (Bankr. W.D. Va. 2006) (Virginia statute allows homestead filing up to five days after meeting of creditors; filing was timely when forms and fee delivered to clerk within that time, even though sent back for noncompliance with local rule concerning form); In re Shelton, 343 B.R. 545 (Bankr. W.D. Va. 2006) (under new statute debtor has five days after rescheduled creditors’ meeting actually takes place to file). But cf. In re Diaz, 2010 WL 2425960 (Bankr. E.D. Va. June 10, 2010) (debtor who missed short Virginia deadline to exempt IRAs could exempt them pursuant to section 522(b)(3)(C) of bankruptcy code).

  • 150 See, e.g., Siewak v. AmSouth Bank, 2007 WL 141186 (M.D. Fla. Jan. 16, 2007) (failure to file homestead notice not fatal to homestead claim; procedure is voluntary, not mandatory); In re Deleplank, 2014 WL 5018598 (Bankr. E.D. Okla. Oct. 7, 2014) (Oklahoma requires no specific procedure for claiming homestead; allowing homestead exemption in property occupied by debtor and co-owned with brother, even though he had never filed for homestead tax exemption); In re Mariano, 311 B.R. 335 (Bankr. D. Mass. 2004) (homestead declaration filed after levy on home is valid if property has not yet been sold); In re Allman, 286 B.R. 402 (Bankr. D. Ariz. 2002) (Arizona statute amended; filing of homestead declaration no longer required); Osborne v. Dumoulin, 55 So. 3d 577, 582–583 (Fla. 2011) (no action necessary to make property a homestead other than acquiring it and making it one’s home); In re Snyder, 149 P.3d 26 (Mont. 2006) (liberally construing statute to allow debtor to claim homestead in sale proceeds—even if no homestead declaration filed before sale—where statute protects proceeds for 18 months if debtor “could have” claimed home as exempt); Cowart v. Pan Am. Bank, 2000 Wash. App. LEXIS 2132 (Wash. Ct. App. Nov. 3, 2000) (Washington property automatically acquires homestead status if it is occupied as residence; judgment creditor may acquire a lien against the value in excess of homestead exemption only by strictly complying with filing procedure).

  • 151 1256 Hertel Ave. Assocs., L.L.C. v. Calloway, 761 F.3d 252 (2d Cir. 2014) (applying increased New York exemption amount when statute changed between date when lien was perfected and petition date); In re Bassin, 637 F.2d 668 (9th Cir. 1980) (interpreting California law not to apply increase in homestead exemption to preexisting debts); In re Kyle, 510 B.R. 804 (Bankr. S.D. Ohio 2014) (construing Ohio exemption law to allow increased homestead exemption amount to apply as of date of bankruptcy filing; uncodified statutory provision referring to date of accrual of claim would be preempted in any event); In re Magee, 444 B.R. 254 (Bankr. S.D.N.Y. 2011) (New York’s increased homestead exemption applies to preexisting debts, even if they have been reduced to judgment); In re Little, 2006 WL 1524594 (Bankr. N.D.N.Y. Apr. 24, 2006) (increased exemption applied to preexisting debt); Homeside Lending, Inc. v. Miller, 31 P.3d 607 (Utah Ct. App. 2001) (statute set amount debtor could claim as homestead exemption “at the time of sale”); Macumber v. Shafer, 637 P.2d 645 (Wash. 1981). Cf. First Nat’l Bank v. Jones, 6 N.E.3d 1231 (Ohio Ct. App. 2014) (homestead exemption amount in effect on date of issuance of execution, not on date creditor obtained judgment lien, applies). See generally §§ 13.2.1, 13.2.2, supra (constitutionality of application of increased exemption to preexisting debts).

  • 152 In re Tardugno, 262 B.R. 168 (Bankr. D. Mass. 2001) (Massachusetts statute which increased exemption does not apply retroactively; when statute became effective after debtor filed bankruptcy, lower exemption applied); In re Skjetne, 213 B.R. 274 (Bankr. D. Vt. 1997) (under Vermont law, increase in homestead exemption does not apply to preexisting debts, but result is different when debtor files bankruptcy); In re Corson, 206 B.R. 17 (Bankr. D. Conn. 1997) (Connecticut’s homestead exemption, which applies prospectively only, did not protect home when debtor incurred debt before statute’s effective date, even though creditor sued and obtained lien afterwards); Builders Supply Co. v. Pine Belt Sav. & Loan Ass’n, 369 So. 2d 743, 745 (Miss. 1979). See generally §§ 13.2.1, 13.2.2, supra (constitutional issues in application of amended exemption statutes to preexisting debts).

  • 153 In re Weinstein, 164 F.3d 677 (1st Cir. 1999) (Bankruptcy Code preempts Massachusetts’ preexisting debt exception); In re Mayer, 167 B.R. 186 (B.A.P. 9th Cir. 1994) (exemption amount in effect on date of bankruptcy filing applies); Redstone Fed. Credit Union v. Brown, 2019 WL 582459 (N.D. Ala. Feb. 13, 2019) (bankruptcy law, which uses exemption amounts as of the petition date, preempts Alabama statute applying exemption amounts in effect when debt was incurred); Redstone Fed. Credit Union v. Whited, 584 B.R. 71 (N.D. Ala. 2018) (in “mixed-debt” cases—i.e., some debt incurred before the increase and some after—amount in effect on petition date will apply); In re Middleton, 544 B.R. 449 (Bankr. S.D. Ala. 2016) (Alabama statute provides that increased exemption amounts apply only to debts incurred after effective date of increase; in bankruptcy, if all debts were incurred before that date, old amounts will apply; but in “mixed debt” cases, when some debts were incurred before and some after, amounts in effect on petition date will apply); In re Davis, 539 B.R. 334 (Bankr. S.D. Ohio 2015) (applying exemption amounts in effect on petition date to lien that pre-dated increase, notwithstanding provision of Ohio statute applying increased amounts only to liens that post-dated increase); In re Santiago, 2015 WL 4399481 (Bankr. D. P.R. July 17, 2015) (applying Puerto Rico’s amended homestead law, which was in effect on petition date, and allowing debtor to avoid judicial lien that was in place on date of statute’s enactment); In re Depascale, 496 B.R. 860 (Bankr. N.D. Ohio Aug. 8, 2013) (using amount in effect on petition date); In re LaVictoire, 2011 WL 1168288 (Bankr. D. Vt. Mar. 29, 2011) (Vermont increased its homestead amount between the date when creditor obtained judgment and the date when debtor filed bankruptcy; bankruptcy law requires use of the amount existing on petition date); In re Suelflow, 2008 WL 5157933 (Bankr. D.N.M. Oct. 10, 2008) (increased exemption amount, in effect on petition date, applied for lien avoidance); In re Dubois, 306 B.R. 423 (Bankr. D. Me. 2004) (Maine statute providing that increase in homestead exemption was prospective only was preempted by bankruptcy law that provided short list of debts that can be collected from exempt property; new exemption amount applied to preexisting debt). But see In re Lewis, 400 B.R. 417 (Bankr. D. Vt. 2009) (bankruptcy law does not preempt provision of state homestead law that makes it inapplicable to debt that pre-dated the acquisition of the homestead); In re Banner, 394 B.R. 292 (Bankr. D. Conn. 2008) (Connecticut’s newly enacted homestead exemption, in effect on petition date, not applicable to judgment lien that attached before its effective date).