Filing for bankruptcy does not mean giving up all of your property. To the contrary, federal and state law allows debtors to protect or exempt a significant amount of both personal and real property in bankruptcy cases. With respect to the latter, a debtor can exempt a certain amount of equity interest in their primary residence or homestead.
For example, in New Hampshire an individual debtor can claim a homestead exemption of up to $120,000. And if the home belongs to a married couple that files for bankruptcy jointly, they can double this homestead exemption to $240,000. But what if only one spouse owns the home and they file for bankruptcy alone? Can they still claim a double homestead exemption if their spouse lives with them on the property?
N.H. Supreme Court Answers Question from Federal Judge
The New Hampshire Supreme Court recently addressed these questions. In 2021, a New Hampshire woman–the debtor in this case–filed for Chapter 7 bankruptcy. The debtor lived with her husband and children in a single-family home in Merrimack, New Hampshire. The debtor was the sole owner of the property, and as such she claimed the $120,000 homestead exemption in her bankruptcy petition. She later amended her petition to claim an additional $120,000 exemption on behalf of her spouse.
The federal bankruptcy court eventually converted the debtor’s Chapter 7 case to a Chapter 13 proceeding. (In a Chapter 13 case, the debtor is required to pay back most if not all of their debts over a period of time.) The bankruptcy judge rejected the debtor’s claim of a double homestead exemption based on her spouse’s occupancy of the property. The bankruptcy court held the exemption only applied to someone who could “demonstrate both occupancy and ownership interests in the homestead property.”
Bankruptcy judges are subject to the authority of U.S. district court judges. The debtor, obviously dissatisfied with the bankruptcy judge’s ruling, therefore appealed to the district court. The district court decided to punt the issue to the New Hampshire Supreme Court. This is a common practice in the federal courts when there is an unresolved question of state law that affects a federal proceeding. Here, the district judge effectively asked the state Supreme Court to answer two questions. But the Supreme Court only decided to answer one of them.
That question focused on the particular wording of New Hampshire’s homestead exemption statute, which reads as follows:
Every person is entitled to $120,000 worth of his or her homestead, or of his or her interest therein, as a homestead. The homestead right created by this chapter shall exist in manufactured housing, as defined by RSA 674:31, which is owned and occupied as a dwelling by the same person but shall not exist in the land upon which the manufactured housing is situated if that land is not also owned by the owner of the manufactured housing.
The district court wanted to know whether this language granted a spouse who occupied but did not live in a homestead property a “present, vested, non-contingent homestead right” of their own. Or to put it another way, did you need to have an ownership interest in the property to claim a homestead exemption? The Chapter 13 bankruptcy trustee argued “no.” The debtor–supported by the New Hampshire attorney general–argued “yes.”
The Supreme Court unanimously agreed with the Chapter 13 trustee. The Court noted that its prior decisions had described the homestead exemption as a “personal privilege” that protected property from being seized by creditors. The nature of the privilege therefore assumed ownership in the property. That said, the Court pointed out the New Hampshire legislature was “free to amend the statutory scheme should it disagree with the conclusion that we reach today.”
Consult a Bankruptcy Lawyer Before You File
Bankruptcy exemptions are a complicated area of law. Depending on the state where you live, you may be required to use a specific set of state exemptions, or you may have to choose between contrasting lists of federal and state exemptions. It is therefore important to consult with a qualified bankruptcy attorney in your area before filing a Chapter 7 or Chapter 13 petition.
Disclaimer: This post is provided for informational purposes only. The author is not an attorney and nothing in this post should be construed as legal advice. You should always consult a licensed and qualified attorney in your state about any legal matter.