Bad Faith and Power of Homestead Exemptions Under Bankruptcy Laws

///Bad Faith and Power of Homestead Exemptions Under Bankruptcy Laws

Bad Faith and Power of Homestead Exemptions Under Bankruptcy Laws

One of the benefits of the federal bankruptcy laws is a well-known exemption to the liquidation of assets. This exemption is known as the homestead exemptions, and under Washington law can help someone struggling through a bankruptcy emerge from the process with a small win.

Under the Washington exemption system, homeowners may exempt up to $125,000 of their home or other property covered by the homestead exemption.

If you owe money to any state for failing to pay income tax for pension or retirement benefits you receive while living in Washington, the homestead exemption is unlimited as to that debt.

Some states allow married couples filing a joint bankruptcy to double the homestead exemption amount, but in Washington, you cannot double. Even so, there are reasons a married couple would choose to file a joint bankruptcy.

These exemptions are an important part of the bankruptcy system, and allow those filing for bankruptcy to leave with some hope for starting over better than before.

Exemptions and the Law

These exemptions are found in the statutory language of the Bankruptcy Code and are very powerful under the law. This point was underscored by the Supreme Court in 2014 when they issued an opinion, overruling the 9th Circuit Court of Appeals who had denied a petitioner their right to a $75,000 exemption in the bankruptcy case.

In that case, Law v. Siegel, a man had filed for Chapter 7 bankruptcy, and claimed a $75,000 exemption for his home. At the same time, he claimed that a fictitious company (he invented), held over $100,000 in notes on his house, in addition to the mortgage owed to a bank. As his home was his only real asset, it left nothing for the trustee to liquidate for his estate.

Upon investigation, however, the trustee found out that this fictitious company did not exist, and therefore much of the home could be liquidated. It took several years of litigation and over $500,000 in litigation costs to find this out. When the bankruptcy finished the trustee asked the court to surcharge the man’s $75,000 home exemption, and apply that to the cost the case, and the bankruptcy court complied.

Supreme Court Overturns

This case went to the Supreme Court and they overturned the bankruptcy court and 9th Circuit Court of Appeals. They ruled that while the man’s conduct was fraudulent, and he should have been punished in a number of different ways, they could not just surcharge his home exemption when it is written into the statute, particularly where no other part of the code allows a judge to do this.

This case exemplifies how powerful the home exemption is in Washington bankruptcy cases, and why it is important to take advantage of this provision in the law. To do so you need the right legal team handling your case, and ensuring you get the best result possible for you bankruptcy case. These and other provisions can either help, or hurt you, depending on many factors.

Schedule a Free Consultation with Your Tacoma Bankruptcy Attorney

When it comes time to file for bankruptcy, you need a compassionate and skilled attorney who will be able to guide you through the process as cleanly as possible. Northwest Debt Relief Law Firm, we can help you with filing for Chapter 7, Chapter 11, and Chapter 13 bankruptcy in Washington State.  We will be there every step of the way to help navigate you through the often-complex and difficult bankruptcy process.

Give us a call at (253) 780-8008 to schedule a free consultation with one of our bankruptcy attorneys. If you have any other questions about bankruptcy, one of our attorneys will be more than happy to offer advice on your particular situation.

2018-05-14T03:27:58+00:00
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