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Chapter 7 Trustee Objects to Debtor's Exemption of Colorado Property

by RMDLG / March 8, 2021

A Chapter 7 Trustee filed an Objection to Agustin J. Jaramillo and Lillian V. Jaramillo’s Claim of Exemption. They requested the Court disallow their claimed exemption in their residence and to limit the remainder of their claimed exemptions in other real property. Mr. Jaramillo used the real property as a “residence” allowed him to claim it as an exemption. Because the federal exemption amounts are insufficient to exempt the equity in all the real property, the U.S. Bankruptcy Court of New Mexico sustained the Trustee’s Objection to Exemption.

Background

Mr. and Mrs. Jaramillo filed a joint voluntary petition under Chapter 7 of the Bankruptcy Code in December 2018. A Chapter 7 Trustee objected to their exemptions. The Debtors stated Mr. Jaramillo lived in New Mexico 71 days during the 180-day period preceding the filing of the chapter 7 bankruptcy petition. They filed a Motion to Dismiss Mr. Jaramillo from the bankruptcy case because he lived most of the year in Colorado and the venue was improper. The Chapter 7 Trustee objected.

The Court held an evidentiary hearing on the Debtors’ Motion to Dismiss and an Objection to Exemptions in December 2019. The Motion to Dismiss was denied. It concluded that because the Debtors chose to file and participated in a bankruptcy case in this district, they waived the right to object to the venue.

Analysis

The Court noted exemption laws are construed “liberally” in favor of the exemption. According to Fed. R. Bankr. P. 4003, the Chapter 7 Trustee had the burden of proving the claimed exemptions were improper. Debtors have the option of choosing federal bankruptcy exemptions or exemptions under another federal state, or local law. States that prohibit debtors from choosing the federal bankruptcy exemption are “opt-out” states.

New Mexico is an opt-out state. Debtors in New Mexico may choose either the federal bankruptcy exemptions or the New Mexico exemptions. Joint debtors in non-opt-out states are unable to select different exemption schemes. The Debtors selected the federal bankruptcy exemptions under 11 U.S.C.A. § 522. They claimed an exemption in Mr. Jaramillo’s interest in their San Luis Property in the amount of $17,500.

Courts are split on whether “residence used in an exemption in real property for 11 U.S.C.A. § 522 is for the debtor’s principal residence or whether the property “need only be used as a residence.” The Court chose not to limit the residence to a primary residence. It stated Congress intended to “encompass a broader category than principal residences.” It held 11 U.S.C.A. § 522 “is not limited to a ‘principal residence,’ and a debtor can have more than one ‘residence.’”

The Court stated physical occupancy of a dwelling house is not a necessity to a finding a debtor occupies a house for residency requirement. It noted the case In re DeMasi, 227 B.R. 586, 588 (D.R.I. 1998) and shows “the determining factor to satisfy the residence requirement…should not be so mechanical as to require a debtor to occupy the home on the filing date or use the address on the bankruptcy filing.” In In re Yanovich, 544 B.R. 306 (Bankr. W.D. Pa. 2016), the Chief Judge held that the “totality of the circumstances supported debtor’s claimed homestead exemption, even though debtor did not occupy the property as of the petition date.” The Court found the evidence established Mr. Jaramillo regularly used the San Luis Property as a residence. It was established that as of the petition date, he had both the intent and “a meaningful ability to occupy the property…within a reasonable time” in the future. The Court noted 11 U.S.C.A. § 522 states a debtor who owns more than one property may exempt only one of them. Mr. Jaramillo chose to use the exemption on the San Luis Property. The Court overruled the Trustee’s objection to the Debtor’s claim of exemption under 11 U.S.C.A. § 522.

Conclusion

The Court overruled the Chapter 7 Trustee’s Objection to Exemptions. Because the value of the San Luis Property exceeded the maximum value exemption under 11 U.S.C.A. § 522, it became subject to liquidation by the Chapter 7 Trustee. Mr. Jaramillo was granted an exemption of up to $7,425 including his New Mexico Property.

Unfortunately, now is a difficult time for many people to satisfy their economic needs. Over 40 million people are unemployed, making it difficult to make ends meet. Rocky Mountain Disability Law Group recognizes this and wishes to help you protect your assets. For information on how we can help, contact us.

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Tags: bankruptcy Chapter 7

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