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13.3.3 Proceeds of Exempt Property

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13.3.3 Proceeds of Exempt Property

Many decisions hold that the proceeds of the sale of exempt property deposited in a bank account are exempt.66 However, commingling with non-exempt funds may present a problem of tracing for some courts,67 and some states require that the proceeds remain separate and identifiable until they are used for a new homestead.68

Courts sometimes protect real and personal property that is purchased with exempt benefit payments.69 This position is particularly common in the workers’ compensation context,70 as the benefits are “meant to be put to useful purposes.”71 Outside the workers’ compensation context, however, many courts hold that an exemption is lost once the benefits are spent.72

A number of states have statutes that specifically protect some particular type of proceeds, such as the proceeds of an insurance policy.73 Statutes protecting the proceeds of the sale of a homestead are particularly common.74 Such a provision typically protects the proceeds of a voluntary sale as well as a foreclosure sale,75 or a sale ordered by a divorce court76 or bankruptcy court.77 However, a few states protect proceeds only in case of an involuntary sale.78 Some courts have also held that the proceeds of refinancing of the home do not result from a sale and so are not exempt under these provisions.79

If a home is sold to buyers who will be making installment payments, the exemption will protect the stream of payments.80 The buyer’s deposit is also exempt as proceeds of the sale of a home.81 Compensation for damage to or destruction of the homestead or other exempt property is also usually treated as proceeds.82 The exemption may extend to a damage award against an insurer that wrongfully denies an insurance claim for damage to the property83 and to an award against the seller of the home on a warranty-like claim.84 In a jurisdiction where homesteads include subsurface mineral rights, the royalties from the sale of these minerals may be exempt as homestead proceeds.85

Some jurisdictions protect the proceeds of the sale of the homestead without any requirement that they be reinvested in a new home.86 Others, however, require proof of intent to purchase another homestead with the proceeds or require that the proceeds be so used within a certain period of time.87 Courts may allow this period to be tolled if circumstances prevent the debtor from using the funds to purchase a new homestead.88

Footnotes

  • 66 In re White, 2013 WL 1601667 (Bankr. D. Neb. Apr. 15, 2013) (fire insurance proceeds of destroyed homestead exempt in bank account); In re Elliot, 448 B.R. 843 (Bankr. D. Colo. 2011) (exempting bank account containing exempt proceeds of sale of homestead); In re Dezonia, 347 B.R. 920 (Bankr. M.D. Fla. 2006) (proceeds of voluntary or involuntary sale of homestead—here, foreclosure surplus—are exempt if intended to be used for new homestead and not commingled with other funds); In re Castro, 2006 WL 4005571 (Bankr. S.D. Fla. Oct. 24, 2006) (proceeds exempt in bank account; fact that bad credit would make new home purchase problematic not sufficient to negate intent to reinvest); In re Alam, 336 B.R. 320 (Bankr. N.D. Ohio 2005) (settlement proceeds from lawsuit for disability benefits exempt, as are investment account funds traceable to settlement proceeds), aff’d, remanded for factual findings, 359 B.R. 142 (B.A.P. 6th Cir. 2006); JBK Assocs., Inc. v. Sill Bros., Inc., 191 So. 3d 879 (Fla. 2016) (homestead proceeds placed in brokerage account while debtor sought new home did not lose exemption; no requirement that proceeds be placed in low- or no-interest bank account; distinguishing cases in which funds were used for risky day-trading); McKernan Co. v. Gregory, 643 N.E.2d 1370 (Ill. App. Ct. 1994). Cf. In re Nye, 210 B.R. 857 (D. Colo. 1997) (proceeds from sale of exempt home could have been exempt if debtor had met burden of proof). But see In re Carelock, 2006 WL 3708688 (Bankr. S.D. Ga. Jan. 13, 2006) (Georgia law does not exempt proceeds of exempt property); In re Roberts, 2005 WL 1924180 (Bankr. M.D. La. Aug. 10, 2005) (annuity not exempt under Louisiana law even though purchased with distribution from exempt 401k plan); In re Simpson, 238 B.R. 776 (Bankr. S.D. Ill. 1999) (insurance payment for damage to vehicle did not fall within exemption for debtor’s “interest in motor vehicle”). See generally W. Vukowich, Debtors’ Exemption Rights, 62 Geo. L.J. 779, 826 (1974); § 14.5.3.1, infra (protection of exempt benefits deposited in bank account).

  • 67 See, e.g., Flatt v. Mullen, 2018 WL 5807078 (D. Ariz. Nov. 6, 2018) (Arizona homestead proceeds were no longer identifiable and lost exemption when commingled with other funds and used for day-to-day expenses); In re Fouracre, 358 B.R. 384 (Bankr. D. Ariz. 2006) (refusing to trace; proceeds of homestead lost exemption when commingled with other funds in bank account; statute protects “identifiable” proceeds; citing cases construing this to require separate account). But see In re Lantz, 451 B.R. 843 (Bankr. N.D. Ill. 2011) (proceeds of homestead are exempt if traceable, even if comingled with other funds). See generally § 14.5.3.2, infra.

  • 68 Colo. Rev. Stat. §§ 38-41-207, 38-41-209 (sale or insurance proceeds of homestead are exempt for two years if kept separate and apart from other moneys). See, e.g., In re Bertola, 2012 WL 1945426 (Bankr. D. Colo. May 30, 2012) (funds must remain “separate and identifiable”; homestead proceeds placed in brokerage account and used to invest in stocks—but funded only with the proceeds—remained exempt), aff’d, 498 B.R. 391 (B.A.P. 10th Cir. 2013).

  • 69 See, e.g., In re Meyer, 392 B.R. 416 (Bankr. N.D. Iowa 2008) (house purchased with personal injury settlement was exempt when proceeds were traceable and home was needed for support); Faro v. Porchester Holdings, Inc., 792 So. 2d 1262 (Fla. Dist. Ct. App. 2001) (exemption extended to certificate of deposit purchased with insurance policy’s cash surrender value, which is exempt under Florida law).

  • 70 In re Williams, 171 B.R. 451 (D.N.H. 1994) (car; noting that workers’ compensation benefits were “meant to be put to useful purposes”); In re Arellano, 524 B.R. 615 (Bankr. M.D. Pa. 2015) (exempting vehicle and modest home purchased with workers’ compensation award); In re Baker, 2006 WL 2079919 (Bankr. M.D. Ala. July 25, 2006) (purpose of workers’ compensation is to rehabilitate worker, not to pay his antecedent debts; exemption survives in hands of worker and in motor vehicles purchased with traceable proceeds of workers’ compensation settlement); In re Gardiner, 332 B.R. 891 (Bankr. S.D. Cal. 2005) (asset acquired, in part, with workers’ compensation award retains exempt status, subject to tracing requirements); In re Nelson, 179 B.R. 811 (Bankr. W.D. Va. 1994) (manufactured home and lot purchased with workers compensation). Cf. In re Sills, 82 F.3d 111 (5th Cir. 1996) (declining to decide whether Internal Revenue Code’s exemption of “any amount payable to an individual as workmen’s compensation” protects house purchased with workers’ compensation lump-sum settlement from IRS levy; only issue is whether federal tax lien itself is proper, no need to decide whether IRS could levy on the home). But see In re Stanley, 494 B.R. 287 (Bankr. E.D. Mich. Mar. 4, 2013) (workers’ compensation funds lost exemption when used as down payment on vehicle); In re Irwin, 371 B.R. 344 (Bankr. C.D. Ill. 2007) (workers’ compensation settlement funds remained exempt in money market account used only for workers’ compensation but lost exemption when used to pay down lien on motor vehicle); In re Rajkovic, 289 B.R. 197 (Bankr. M.D. Fla. 2002) (workers’ compensation funds lost exemption when large lump sum was transferred to debtor’s closely held corporation and used to purchase limousine; funds “invested in a business venture” were no longer used to rehabilitate worker or save him from poverty while disabled); Sullo v. Cinco Star, Inc., 755 So. 2d 822 (Fla. Dist. Ct. App. 2000) (exemption lost when worker received large lump sum, bought certificate of deposit, and pledged that certificate of deposit as security for a loan); Holsman v. Holsman, 49 S.W.3d 795 (Mo. Ct. App. 2001) (in absence of evidence that gift was not intended, depositing workers’ compensation lump sum in couple’s joint account made it marital property that could be divided up at divorce); Feliciano v. McClung, 556 S.E.2d 807 (W. Va. 2001) (lump-sum workers’ compensation award would remain exempt in ordinary bank account, but purchase of certificate of deposit turns it into non-exempt investment). See generally § 14.5.3.1, infra (whether funds remain exempt after deposit in bank account).

  • 71 In re Williams, 171 B.R. 451, 453 (D.N.H. 1994).

  • 72 Hebert v. Royal (In re Hebert), 463 B.R. 142 (B.A.P. 10th Cir. 2011) (table; text available at 2011 WL 1670898) (interpreting Wyoming law not to exempt funds withheld from exempt unemployment benefits and retirement plan payments when returned to debtor as a federal income tax refund); In re Hewitt, 2015 WL 9239120 (Bankr. N.D. Iowa Dec. 16, 2015) (house purchased with proceeds of exempt IRA not exempt, because house is not tax-qualified); In re Zayas, 2015 WL 9256656 (Bankr. D. P.R. Dec. 16, 2015) (bank CD purchased with funds withdrawn from exempt retirement plan not exempt because not tax-qualified); In re Kramer, 339 B.R. 761 (Bankr. D. Colo. 2006) (wages would remain exempt in bank account, but stock purchased by payroll deductions had undergone “change of character” and become non-exempt personal property); In re Duemey, 347 B.R. 875 (Bankr. S.D. Ohio 2006) (vehicle purchased for debtor by ex-husband, to satisfy his debt for back child support, not exempt; child support had lost “quality as monies”); In re Burchard, 214 B.R. 494 (Bankr. D. Neb. 1997) (proceeds of personal injury judgment remained exempt while they were “cash or cash equivalent,” but exemption did not protect personal property bought with the proceeds); Asset Acceptance Corp. v. Hughes, 706 N.W.2d 446 (Mich. Ct. App. 2005) (Social Security disability benefits lost exempt status when used to pay rent, so tax credit resulting from payment of rent not exempt); In re Christensen, 149 P.3d 40 (Nev. 2006) (wage exemption does not protect property purchased with exempt wages); Rolle v. A.T.M. Three, L.L.C., 856 N.Y.S.2d 502 (N.Y. Dist. Ct. 2008) (exemption lost when Social Security benefits used to pay rent); Canton Student Loan Found. v. Mayo, 2008 WL 1970023 (Ohio Ct. App. Apr. 28, 2008) (SSI funds remain exempt in bank account but lose exemption when spent; here, debtor paid SSI funds to contractor, who failed to perform, and recovered from his bond; recovery not exempt); Gray v. Gray, 922 P.2d 615 (Okla. 1996) (veterans disability funds lost quality of monies when used to purchase property; specially adapted vehicle was jointly acquired property which could be divided up by divorce judgment); Fox v. Fox, 2001 Tenn. App. LEXIS 239 (Tenn. Ct. App. Apr. 11, 2001) (veterans benefits lost “the quality of moneys” when used to purchase land).

  • 73 See § 15.4.1.2, infra.

  • 74 In re Cunningham, 513 F.3d 318 (1st Cir. 2008) (proceeds of voluntary postpetition sale of exempt Massachusetts homestead remain exempt); In re Danduran, 438 B.R. 658 (B.A.P. 8th Cir. 2010) (applying principle of liberal interpretation to exempt entire proceeds of sale of homestead plus appliances, rugs, and sound system; proceeds not allocated between real and personal property), aff’d, 657 F.3d 749 (8th Cir. 2011); In re Cerchione, 414 B.R. 540 (B.A.P. 9th Cir. 2009) (home under construction was exempt when debtors applied proceeds of old homestead to cost of construction, and bank provided loan for the balance); In re Smith, 526 B.R. 343 (D. Ariz. 2015) (proceeds exempt if used in establishing new homestead, including finding and acquiring the home, preparing it for occupancy, and moving in; new homestead need not be in Arizona); In re Roberts, 450 B.R. 159 (N.D. Iowa May 5, 2011) (because Iowa homestead continues in sales proceeds and home purchased with proceeds, debtor may exempt home that she must sell in order to relocate); In re McCollum, 363 B.R. 789 (E.D. La. 2007) (Louisiana homestead exemption protects proceeds of voluntary sale); In re Rich, 2013 WL 1628723 (Bankr. D. Kan. Apr. 16, 2013) (fully exempting homestead purchased with proceeds of old homestead, exempt IRA and other funds; trustee, who had burden of proof, failed to show what portion of funds was not homestead proceeds); In re Bading, 376 B.R. 143 (Bankr. W.D. Tex. 2007) (when homestead sold as two parcels, debtor could exempt proceeds of both sales); Battin v. Bayside Fin. Corp., 2004 WL 2307102 (Cal. Ct. App. Oct. 14, 2004) (proceeds of sale of homestead exempt, even for debt that was nondischargeable in bankruptcy for fraud); Kerzner v. Kerzner, 77 So. 3d 214 (Fla. Dist. Ct. App. 2011) (proceeds of sale of marital home are exempt); In re Estate of Hamel, 821 So. 2d 1276 (Fla. Dist. Ct. App. 2002) (deceased was in process of selling condominium at time of death, and executor closed sale shortly thereafter; proceeds exempt in hands of adult daughters); In re Snyder, 149 P.3d 26 (Mont. 2006) (proceeds exempt for eighteen months even though no homestead declaration filed at time of sale). See also In re Patterson, 482 B.R. 755 (Bankr. D. Vt. 2012) (new home purchased with proceeds of old is exempt; when couple divorced, wife received marital home, husband received a package of other assets, including the IRA he used to pay for new home); In re Nork, 2012 WL 6027765 (Bankr. D. Or. Dec. 4, 2012) (allowing exemption of proceeds of lease of corner of rural homestead for cell phone tower; debtor was using proceeds to pay her mortgage); In re Roberts, 215 B.R. 197 (Bankr. D. Neb. 1997) (intention to sell homestead property was not abandonment when Nebraska law made proceeds exempt for six months). But see In re Canto, 476 B.R. 370 (Bankr. D. Mass. 2012) (Massachusetts exempts only proceeds “received” by debtor; denying exemption to foreclosure surplus tied up in interpleader action); In re Schlakman, 2007 WL 1482011 (Bankr. S.D. Fla. Jan. 16, 2007) (debtor could not exempt proceeds of former marital home, located in New York, despite intention to reinvest in Florida home; proceeds exempt only if property was located in Florida); In re Wiley, 352 B.R. 716 (Bankr. D. Idaho 2006) (debtors could not claim homestead exemption in both their remaining property and the proceeds of eminent domain taking of one corner); Shih Chang Hu v. Evergreen of the S., Inc., 148 So. 3d 1 (La. Ct. App. 2014) (attributing the homestead exemption entirely to the portion of the proceeds that the homeowner used to pay off a mortgage when she sold the home, leaving the remainder of the proceeds non-exempt; strong dissent). But cf. In re Loggins, 513 B.R. 682 (Bankr. E.D. Tex. 2014) (exemption not available for proceeds of sale of one parcel of homestead realty where debtor continued to reside, and claim homestead, on the remainder of the property; purpose of proceeds exemption is to prevent homelessness); Beck v. Lapsley, 593 N.W.2d 410 (S.D. 1999) (if homeowners over the age of seventy, who are entitled to exempt entire value of homestead, sell home, they may claim only the standard $30,000 exemption in the proceeds).

  • 75 See, e.g., In re Elliot, 448 B.R. 843 (Bankr. D. Colo. 2011) (Colorado homestead exempts proceeds of voluntary sale or sheriff’s sale but is silent as to non-judicial foreclosure; principle of liberal interpretation requires exemption of surplus from non-judicial foreclosure); In re Dezonia, 347 B.R. 920 (Bankr. M.D. Fla. 2006) (proceeds of voluntary or involuntary sale of homestead—here, foreclosure surplus—exempt if intended to be used for new homestead and not commingled with other funds); In re Miller, 246 B.R. 564 (Bankr. E.D. Tenn. 2000) (Tennessee homestead exemption survives in proceeds of involuntary sale of residence); Morgan Keegan Mortg. Co. v. Candelaria, 951 P.2d 1066 (N.M. Ct. App. 1997) (homestead exemption protected $20,000 of proceeds of private sale conducted with court’s permission before foreclosure judgment; exemption would have applied to proceeds of foreclosure sale and public policy favored voluntary sales during foreclosure to maximize debtor’s return); Upton v. Household Fin. Indus. Loan Co., 6 P.3d 1231 (Wash. Ct. App. 2000) (homestead exemption protects surplus resulting from foreclosure sale, but holder of second mortgage has priority over homeowner’s homestead rights); In re Sweet, 944 P.2d 414 (Wash. Ct. App. 1997) (Washington’s homestead exemption protects surplus paid to homeowners after non-judicial foreclosure).

  • 76 In re Westmeyer, 2010 WL 2103571 (Bankr. N.D. Iowa May 24, 2010) (house being sold by order of divorce court; debtor may exempt any proceeds left over after payment of debt to ex-wife); In re Strasser, 303 B.R. 841 (Bankr. D. Ariz. 2004); In re Willoughby, 2003 WL 22849766 (Bankr. C.D. Ill. Dec. 2, 2003) (wife’s court-ordered payment to husband as compensation for award to her of former marital home was exempt when husband intended to invest it in new home). See also In re Hurt, 2009 WL 382631 (Bankr. D. Neb. Feb. 12, 2009) (divorcing couple sold former marital home and split the proceeds; when each spouse had undivided half interest in the house, this was sufficient to support a homestead exemption in the entire proceeds); In re Ballato, 318 B.R. 205 (Bankr. M.D. Fla. 2004) (ex-husband could claim homestead exemption in proceeds of marital home sold by court order during property division; non-occupancy not a bar when it was required by restraining order); In re Cumberbatch, 302 B.R. 675 (Bankr. C.D. Cal. 2003) (court-ordered sale of home during property division was “forced sale to satisfy a money judgment” within meaning of California statute allowing automatic exemption, for six months, for proceeds); In re Kalnynch, 284 B.R. 149 (Bankr. M.D. Fla. 2002) (ex-wife, who received house, ordered to pay $15,000 to husband when house sold or refinanced; husband could exempt this as proceeds of homestead). But see In re Jefferies, 468 B.R. 373 (B.A.P. 9th Cir. 2012) (Washington protects only proceeds of voluntary sale; sale pursuant to divorce decree not voluntary, even though it incorporated separation agreement voluntarily negotiated by couple). But cf. In re Schissler, 250 B.R. 697 (Bankr. W.D. Mo. 2000) (Missouri homestead exemption did not protect funds awarded to husband in lieu of specific marital property in divorce which granted house to wife).

  • 77 See, e.g., In re May, 329 B.R. 789 (Bankr. D.N.H. 2005) (when house sold during bankruptcy, debtor receives up to amount of homestead exemption from proceeds).

  • 78 See, e.g., In re Murdock, 2008 WL 728879 (Bankr. N.D.N.Y. Mar. 17, 2008) (no New York exemption for proceeds of voluntary sale; debtors who sold farm, intending to buy back farmhouse, not entitled to exemption in proceeds set aside for down payment); In re Kujan, 286 B.R. 216 (Bankr. D. Conn. 2002) (Connecticut exempts proceeds of forced sale but not voluntary sale; ex-wife who quitclaimed house to husband could not exempt husband’s obligation to pay her when youngest child reached eighteen or house sold); Schalebaum v. Town of Wolfeboro (In re Schalebaum), 273 B.R. 1 (Bankr. D.N.H. 2001) (New Hampshire homestead exemption does not cover proceeds of voluntary sale of homestead). See also In re Lares, 188 F.3d 1166 (9th Cir. 1999) (Idaho exempts homestead and sale proceeds from “attachment, execution or forced sale,” but not from bank’s contractual setoff); Martin v. DeWitt, 334 P.3d 123, 130–131 (Wyo. 2014) (homestead rights apply to forced sale, not to sale as a result of partition suit by tenants in common when this co-tenant agreed that partition sale was appropriate).

  • 79 In re Polimino, 345 B.R. 708 (B.A.P. 10th Cir. 2006) (no homestead exemption in proceeds of refinancing; refinancing not a sale within meaning of Colorado statute exempting sales proceeds); Homeside Lending, Inc. v. Miller, 31 P.3d 607 (Utah Ct. App. 2001) (proceeds of refinancing not sale proceeds within meaning of Utah exemption statute).

  • 80 See, e.g., In re Greene, 451 B.R. 331 (Bankr. D. Vt. 2011) (debtor may exempt, as homestead proceeds, stream of payments from buyer’s promissory note; no time limit and no need to prove intent to reinvest in new home); In re VanSickle, 350 B.R. 897 (Bankr. D. Idaho 2006) (Oregon homestead exemption, which protects proceeds of sale of homestead if reinvested in homestead within one year, will protect payments made by buyers pursuant to promissory note, provided funds are timely reinvested). But cf. In re Anderson, 516 B.R. 532 (Bankr. W.D. Wis. 2014) (Minn. law) (statute protects proceeds—here, the stream of installment payments—only for one year after sale).

  • 81 Gen. R.A.C., Inc. v. Coldwell Banker Residential Real Estate, Inc., 876 So. 2d 606 (Fla. Dist. Ct. App. 2004) (buyer’s deposit, held in escrow by realtor, was proceeds of seller’s homestead, exempt for reasonable time). See also In re Takes, 334 B.R. 642 (N.D. Iowa 2005) (returned entrance deposit from retirement community was exempt as proceeds of homestead), aff’d on other grounds, 478 F.3d 902 (8th Cir. 2007). But cf. In re Stewart, 452 B.R. 726 (Bankr. C.D. Ill. 2011) (refund of amounts that had been held in their escrow account that sellers received when they sold their home is not homestead proceeds, because not traceable to buyers).

  • 82 In re White, 2013 WL 1601667 (Bankr. D. Neb. Apr. 15, 2013) (fire insurance proceeds of destroyed homestead exempt in bank account); In re Lehman, 2009 WL 497125 (Bankr. W.D. Wash. Feb. 26, 2009) (insurance check for storm damage to homestead remains exempt for one year even if deposited in unsegregated bank account); In re Barbe, 2006 WL 2403826 (Bankr. E.D. La. Feb. 17, 2006) (insurance proceeds for exempt property destroyed by hurricane are exempt); In re Hoffpauir, 258 B.R. 447 (Bankr. D. Idaho 2001) (Idaho exemption statute protects fire insurance proceeds of destroyed property); Quiroga v. Citizens Prop. Ins. Corp., 34 So. 3d 101 (Fla. Dist. Ct. App. 2010) (insurance proceeds for hurricane damage to homestead exempt; contingent fee agreement with attorney who sued insurer to obtain payment not sufficient to waive homestead exemption in proceeds); In re Estate of Tolson, 690 N.W.2d 680 (Iowa 2005) (insurance proceeds for water damage to homestead are exempt for reasonable time if used to repair or replace). See also In re Burns, 482 B.R. 164 (Bankr. E.D. La. 2012) (compensation for loss or destruction of exempt property is exempt; here, applying state exemption for disposable earnings to portion of personal injury judgment that compensated for lost wages); In re Guenther, 417 B.R. 685 (Bankr. W.D.N.Y. 2009) (New York $5000 exemption for household goods survives in insurance proceeds for destroyed goods; debtors may exempt a combined total of $5000 in insurance proceeds and surviving goods). Cf. In re Crooks, 351 B.R. 783 (Bankr. S.D. Fla. 2006) (Florida homestead exemption protects insurance proceeds that compensate for damage to or destruction of homestead; no homestead when debtors did not own and owner did not reside in house on date of storm, but proceeds exempt because received in trust for owner and mortgage lender, to be used only for repairs). But see Grego v. Pac. W. Bank, 551 B.R. 33 (E.D. Cal. 2016) (money damages for wrongful foreclosure are not exempt homestead proceeds); In re Plant, 503 B.R. 224 (Bankr. D. Mass. 2013) (Massachusetts law explicitly exempts insurance proceeds of homestead but is silent as to personal property; denying exemption to fire insurance proceeds from damaged personal property); In re Carelock, 2006 WL 3708688 (Bankr. S.D. Ga. Jan. 13, 2006) (insurance proceeds, which debtor intended to use to replace totaled car, not exempt because Georgia law does not exempt proceeds of exempt property).

  • 83 See, e.g., West v. Carlew, 2012 WL 3002197 (S.D. Tex. July 23, 2012) (proceeds of action against insurer that wrongfully refused to pay for hurricane damage); In re Hill, 2011 WL 6936357 (Bankr. S.D. Tex. Dec. 30, 2011) (insurance proceeds take the place of exempt homestead; allowing exemption of proceeds of action against insurer who wrongfully failed to compensate insured for hurricane damage). But see In re Simmons, 520 B.R. 136 (Bankr. M.D. Fla. 2014) (settlement proceeds of insurance bad faith claim, arising from delay in paying claim for sinkhole damage to homestead, not exempt compensation for damage to homestead; property damage and bad faith were two separate claims).

  • 84 In re Murphy, 367 B.R. 711 (Bankr. D. Kan. 2007) (deceptive practices and breach of warranty causes of action, arising from sale of defective manufactured home, exempt under Kansas homestead law). See also In re Gilley, 236 B.R. 441 (Bankr. M.D. Fla. 1999) (settlement proceeds from lawsuit against pesticide manufacturer whose product contaminated homestead farmland exempt, because debtor planned to spend proceeds on efforts to clean up land), aff’d sub nom. Gilley v. Farm Serv. Agency, 211 F.3d 131 (11th Cir. 2000) (table; text available at 2000 WL 297680). But cf. In re MacNeal, 2007 WL 917255 (Bankr. S.D. Fla. Mar. 22, 2007) (properties that were subject of TILA, HOEPA, and usury claims arising from purchase of homestead were personal property, not covered by Florida homestead exemption), aff’d, 308 Fed. Appx. 311 (11th Cir. 2009); In re Foor, 259 B.R. 899 (Bankr. C.D. Ill. 2000) (cause of action for termite damage that occurred before debtors owned house not protected by homestead exemption); In re Simpson, 238 B.R. 776 (Bankr. S.D. Ill. 1999) (Illinois exemption for debtor’s “interest in a motor vehicle” did not exempt insurance proceeds for “totaled” vehicle); In re Schubert, 218 B.R. 603 (Bankr. N.D. Okla. 1998) (Oklahoma homestead exemption exempts compensation for damage to homestead property but not homeowners’ cause of action against sellers and inspector over undisclosed defects in the property); In re Bradley, 212 B.R. 998 (Bankr. M.D. Ala. 1997) (homestead exemption did not exempt homeowners’ cause of action against sellers and realtor for concealment of termite damage before current owners owned home, as this was not analogous to fire insurance proceeds for damage to home).

  • 85 Fitzgerald v. Cadle Co., 2017 WL 4675513 (Tex. App. Oct. 18, 2017).

  • 86 See, e.g., In re Awayda, 574 B.R. 692 (Bankr. C.D. Ill. 2017) (Illinois homestead proceeds are unconditionally exempt for one year, whether or not proceeds are spent on a new homestead); In re Godfrey, 386 B.R. 339 (Bankr. D. Utah 2008) (Utah homestead proceeds exempt for one year; no requirement that they be kept separate or in their “original form”; here, part of proceeds used for apartment, the rest spent for wedding ring and honeymoon); In re Duffy, 240 B.R. 60 (Bankr. D. Nev. 1999) (Nevada homestead exemption protects proceeds of sale of homestead, whether or not debtor intends to reinvest in new homestead).

  • 87 ARIZONA: In re White, 389 B.R. 693 (B.A.P. 9th Cir. 2008) (proceeds in bank account lost exemption when used for stock trading and not reinvested in homestead within eighteen months); In re Konnoff, 356 B.R. 201 (B.A.P. 9th Cir. 2006) (Ariz. law) (proceeds exempt on petition date lose exemption if not timely reinvested); In re Smith, 342 B.R. 801 (B.A.P. 9th Cir. 2006) (Ariz. law) (proceeds lose exemption if not invested in new homestead within eighteen months; when period expired during bankruptcy, proceeds became part of bankruptcy estate); In re Fouracre, 358 B.R. 384 (Bankr. D. Ariz. 2006) (proceeds lost exemption, even though debtors, whose bad credit prevented purchase in own name, used funds for earnest money and down payment on purchase of home by relatives, with whom debtors resided in both old and new home).

    CALIFORNIA: In re Binesh, 542 B.R. 1 (Bankr. C.D. Cal. 2015) (exemption lost when debtors were in process of purchasing new home, but sale was not complete and debtors did not occupy the home within six months); In re Perpinan, 2007 WL 2345019 (Bankr. N.D. Cal. Aug. 15, 2007) (purported reinvestment was sham; homestead exemption lost and bankruptcy discharge denied).

    COLORADO: Fleet v. Zwick, 994 P.2d 480 (Colo. App. 1999) (applying statutory provision allowing homestead exemption to continue in new home if proceeds of sale of former homestead are used to purchase it; when proceeds were placed in separate bank account, use of some funds for non-exempt purpose did not destroy exempt status of remaining funds).

    FLORIDA: In re Fling, 449 B.R. 580 (Bankr. N.D. Fla. 2011) (intent to reinvest sufficiently shown; debtor hired a realtor, viewed six properties, made unsuccessful offers on three, and ceased trying only after creditor froze bank account containing homestead proceeds); In re Gauthier, 2007 WL 1580100 (Bankr. S.D. Fla. May 30, 2007) (exemption lost when proceeds used for “living expenses”; note that concealment of funds was sufficient to deny discharge); In re Castro, 2006 WL 4005571 (Bankr. S.D. Fla. Oct. 24, 2006) (proceeds exempt in bank account; fact that bad credit would make new home purchase problematic not sufficient to negate intent to reinvest, but funds lost exemption when dissipated postpetition for living expenses); In re Kalnynch, 284 B.R. 149 (Bankr. M.D. Fla. 2002) (delay in acquiring new homestead not fatal); In re Binko, 258 B.R. 515 (Bankr. S.D. Fla. 2001) (proceeds exempt when debtors showed good faith and due diligence in seeking less expensive home and proceeds not commingled with other funds, although debtors spent some on rental housing while house hunting); In re Delson, 247 B.R. 873 (Bankr. S.D. Fla. 2000) (Florida homestead proceeds exempt only if there is intention to purchase another homestead within reasonable time); Lane v. Cuniffe, 188 So. 3d 40 (Fla. Dist. Ct. App. 2016) (homestead proceeds exempt up to the amount debtor intends to use to purchase new homestead; key issue is debtor’s intent at the time of sale); Town of Lake Park v. Grimes, 963 So. 2d 940 (Fla. Dist. Ct. App. 2007) (burden on debtors to show good faith intent to reinvest; not shown here); Rossano v. Britesmile, Inc., 919 So. 2d 551 (Fla. Dist. Ct. App. 2005) (intent to reinvest shown when homestead proceeds were escrowed prior to closing on new homestead). See also In re Simms, 243 B.R. 156 (Bankr. S.D. Fla. 2000) (homestead exemption continues to protect proceeds of sale of home only if debtor intends to invest them in a new home, but they may also be exempt if they are rolled over into another exempt form—here, an annuity—without fraudulent intent); Kerzner v. Kerzner, 77 So. 3d 214 (Fla. Dist. Ct. App. 2011) (separation agreement required husband to use part of proceeds to pay certain debts; remaining proceeds exempt when he credibly testified that he intended to use them to buy new home).

    ILLINOIS: U.S. v. Capital Tax, 2011 WL 2565690 (N.D. Ill. June 29, 2011) (no homestead exemption for stream of payments from reverse mortgage being used for day-to-day expenses; payments are sales proceeds which are exempt only if debtor intends to invest in new homestead); In re Awayda, 574 B.R. 692 (Bankr. C.D. Ill. 2017) (exemptions are determined as of petition date; debtor may exempt sale proceeds of homestead, provided that less than one year has passed since receipt of the proceeds, and funds will remain exempt regardless of postpetition developments); In re Stewart, 452 B.R. 726 (Bankr. C.D. Ill. 2011) (intent to reinvest need not be proven, but bankruptcy does not toll statutory one-year period during which proceeds must be invested in new homestead, which began on date when proceeds were received; debtor can be ordered not to spend proceeds for non-homestead purpose); In re Snowden, 386 B.R. 730 (Bankr. C.D. Ill. 2008) (homestead proceeds exempt; intention to reinvest sufficiently shown when debtor testified that she would “explore her options” for new home, might use funds as entrance fee to retirement community); In re Ziegler, 239 B.R. 375 (Bankr. C.D. Ill. 1999) (homestead proceeds not exempt without showing of intent to buy another homestead). But see In re Lantz, 446 B.R. 850 (Bankr. N.D. Ill. 2011) (Illinois’s one-year exemption for homestead proceeds does not require proof of intent to reinvest; proceeds that were exempt on petition date remain exempt).

    IOWA: In re Roberts, 450 B.R. 159 (N.D. Iowa May 5, 2011) (because Iowa homestead continues in sales proceeds and home purchased with proceeds, debtor may exempt home which she must sell in order to relocate); In re Dittmer, 2011 WL 652759 (Bankr. S.D. Iowa Jan. 12, 2011) (homeowners are entitled to a reasonable time to reinvest proceeds in new homestead); In re Russow, 357 B.R. 133 (Bankr. N.D. Iowa 2007) (proceeds of old homestead rolled over into new one are exempt as to preexisting debts); Braunger v. Karber, 563 N.W.2d 1 (Iowa 1997) (proceeds of sale of homestead are exempt for reasonable time after sale if seller intends to use them to buy a new homestead; applying this rule when judgment creditor attempted to execute on portion of purchase price in hands of buyers before they paid it to debtors). See also In re White, 293 B.R. 1 (Bankr. N.D. Iowa 2003) (once established, homestead exemption may be transferred from one residence to another; no abandonment when debtors lived for short time in an apartment due to “timing problems” with sale of one house and purchase of next); In re Estate of Tolson, 690 N.W.2d 680 (Iowa 2005) (insurance proceeds for water damage to homestead exempt for reasonable time if used to repair or replace); John Deere Cmty. Credit Union v. Miller, 810 N.W.2d 896 (Iowa Ct. App. 2012) (when debtor agreed to use inherited homestead proceeds to reimburse estate for money improperly taken during testator’s lifetime, this showed intention not to invest in new homestead; exemption lost).

    KANSAS: In re Letterman, 356 B.R. 540 (Bankr. D. Kan. 2006) (no homestead exemption in house lot or fire insurance proceeds when debtor neither occupied homestead on petition date, nor testified to intention to use proceeds to rebuild); In re Ginther, 282 B.R. 16 (Bankr. D. Kan. 2002) (proceeds exempt only if used for purchase of Kansas homestead, not when debtors moved to Colorado).

    MISSOURI: In re Seeley, 341 B.R. 277 (Bankr. W.D. Mo. 2006) (homestead not lost when property placed on market when debtor testified that proceeds would be used for new homestead).

    OKLAHOMA: In re Barnes, 307 B.R. 731 (B.A.P. 10th Cir. 2004) (Okla. law). See also Bowles v. Goss, 309 P.3d 150 (Okla. Civ. App. July 16, 2013) (funds voluntarily withdrawn from reverse mortgage line of credit are homestead proceeds, exempt only if held for reinvestment in new homestead).

    OREGON: In re Wynn, 369 B.R. 605 (Bankr. D. Or. 2007) (money spent on rent was reinvested in homestead); In re VanSickle, 350 B.R. 897 (Bankr. D. Idaho 2006) (Oregon homestead exemption, which protects proceeds if reinvested in homestead within one year, protects payments made by buyers pursuant to promissory note, provided funds are timely reinvested).

    TEXAS: In re DeBerry, 884 F.3d 526 (5th Cir. 2018) (when debtor owns the home at time of filing and then sells it during the course of a Chapter 7 bankruptcy, proceeds are unconditionally exempt and do not become part of the bankruptcy estate even if not reinvested in a new homestead within six-month period; noting that result would be different in Chapter 13 case); In re Frost, 744 F.3d 384 (5th Cir. 2014) (proceeds of postpetition sale of homestead lose exemption and become part of bankruptcy estate if not invested in new homestead within six months); Zibman v. Tow (In re Zibman), 268 F.3d 298 (5th Cir. 2001) (Texas homestead exemption protects proceeds of sale only if reinvested in another Texas homestead within six months). See also In re Viegelahn v. Lopez, 570 B.R. 51 (W.D. Tex. 2017) (proceeds of postpetition sale of homestead lost exemption and became property of Chapter 13 bankruptcy estate when not invested in new homestead within 6 months), aff’d in part, vacated in part, remanded on other grounds, In re Lopez, 897 F.3d 663 (5th Cir. 2018); In re D’Avila, 498 B.R. 150 (Bankr. W.D. Tex. 2013) (if homestead sold prepetition, proceeds lose exemption and become property of bankruptcy estate if not used to purchase new home, but when, as here, home is homestead—not proceeds—on petition date, exemption is final and debtor may use proceeds as she chooses); In re Mills, 2011 WL 1810487 (Bankr. S.D. Tex. May 11, 2011) (debtor sold part of homestead land to pay for repair of hurricane damage; note required buyer to make three annual payments; six-month period for reinvestment began to run with each payment); In re Presto, 376 B.R. 554 (Bankr. S.D. Tex. 2007) (exemption for homestead proceeds ends with purchase of new homestead; leftover funds not exempt); In re Jones, 327 B.R. 297 (Bankr. S.D. Tex. 2005) (asset other than new homestead that is purchased with proceeds of homestead sale is not exempt under Texas law); Cadle Co. v. Harvey, 46 S.W.3d 282 (Tex. App. 2001) (complicated series of transactions, including leasing home to another for two years, ending up with lease with option to buy, did not create gap in homestead exemption). Cf. In re Montemayor, 547 B.R. 684 (Bankr. S.D. Tex. 2016) (proceeds of postpetition sale of homestead that was exempted in chapter 7 bankruptcy are exempt from claims of prepetition creditors even if not reinvested within six months, but postpetition creditors may be able to reach the now non-exempt funds). But cf. In re Fehmel, 372 Fed. Appx. 507 (5th Cir. 2010) (sale proceeds not exempt because debtors acquired new homestead before the sale; property then ceased to be homestead); West v. Carlew, 2012 WL 3002197 (S.D. Tex. July 23, 2012) (requirement that proceeds be invested within six months applies only to sales, not insurance, proceeds; insurance proceeds remain exempt).

    WASHINGTON: In re Good, 588 B.R. 573 (Bankr. W.D. Wash. 2018) (Washington statute limiting exemption of homestead proceeds to one year if not spent on new homestead applies only to voluntary sale; no time limit for proceeds of forced sale—here, sale by bankruptcy trustee). See generally § 15.2.4.2, infra (abandonment of homestead).

  • 88 In re Wiggains, 535 B.R. 700 (Bankr. N.D. Tex. 2015) (tolled during period when court order required trustee to hold funds, pending determination of competing claims), aff’d, 848 F.3d 655 (5th Cir. 2015); In re Williams, 515 B.R. 395 (Bankr. D. Mass. 2014) (Massachusetts’s one-year limit on exemption of homestead proceeds is tolled during pendency of divorce); In re Marriott, 427 B.R. 887 (Bankr. D. Idaho 2010) (allowing equitable tolling when divorce court had ordered homestead proceeds to be held in attorney’s trust account while other issues were resolved); London v. London, 342 S.W.3d 768 (Tex. App. 2011) (tolling the six-month period because trial court erroneously required payment of proceeds to receiver). See also In re Bading, 376 B.R. 143 (Bankr. W.D. Tex. 2007) (when debtor had to sell homestead as two parcels because creditor refused to release clearly invalid lien on second parcel, time began to run only upon second sale). But cf. In re Jacobson, 676 F.3d 1193 (9th Cir. 2012) (Cal. law) (filing bankruptcy during six-month period for investment of proceeds does not toll this limitation; proceeds lose exemption after six months); Hodes v. Diagnostic Experts of Austin, Inc., 2010 WL 2867344 (Tex. App. July 22, 2010) (exemption lost after six months, even though funds tied up in court-ordered trust fund; even if tolling permitted, an issue not reached here, debtor must request tolling before expiration of six months).