Soledad, CA asked in Bankruptcy for California

Q: What are the options and requirements for reinvesting Homestead Exemption funds while in Chapter 7 bankruptcy?

I am in active bankruptcy (not yet discharged) My home was sold to satisfy claims. The Trustee issued me $75K for my Homestead Exemption and said it should be reinvested in a primary residence within 150 days. What are my options (i.e., rent? motorhome? co-invest?)?

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4 Lawyer Answers

Peter Maurice Lively

Answered
  • Bankruptcy Lawyer
  • Culver City, CA
  • Licensed in California

A: California Code of Civil Procedure Section 704.710 provides the definition of a dwelling and the types of dwellings which may your homestead which include a house, a mobile home, a boat, etc.

If you don't reinvest the homestead funds within the six months deadline, the trustee will be able to take back those funds for the bankruptcy estate.

You should consult with an attorney regarding your deadline and the residence requirements.

Ronald Holland

Answered
  • Bankruptcy Lawyer
  • Roseville, CA
  • Licensed in California

A: The trustee is apparently taking the position that the exemption must be valid until the case closes. I have not run into this exact situation with a sale, other than having the entire property abandoned by the trustee by court order so my client could sell while still in the bankruptcy case, but it makes sense.

First of all, I hope you have your own attorney representing you in this case. If so, you should be asking them that question and relying on their advice, not advice you get from someone that doesn't represent you and doesn't' really know the facts of your case.

Given that, the exemption you must have used would be CCP 704.710-704.730. Subpart 710(d) defines when the exemption is applicable and has the terminology that the trustee is referring to about the proceeds from a sale. This section and subpart 720 and 730 however, in my opinion may be contradictory to the trustee's position to a certain extent. The statute has language about up until the court determines the exemption. In the bankruptcy contest, does that occur when the trutsee has the court approve his sale of the property and your right to an exemption? That may or may not be interpreted as cutting of the trustee's rights to the proceeds and I would certainly want to know the answer to that question before you go buy more property if you are not ready to do so anyway.

You need to have an experienced bankruptcy attorney representing you, they should research this aspect of the exemption requirement and you should follow their advice. If you are just going it on your own, you can almost expect that the trustee will take advantage of that if he/she can. The trustee has no duty to you as the debtor when it comes to the assets, but their duty is to the creditors. The trustee's duty is to get as much as possible for the benefit of creditors. You must have an attorney helping you if you want this to come out to your best advantage!

Harlene Miller

Answered
  • Bankruptcy Lawyer
  • Irvine, CA
  • Licensed in California

A: I agree with my colleagues - you need to consult with an experienced bankruptcy attorney regarding your options. The Bankruptcy Code is very specific - the funds must be reinvested in a new "homestead" within six months after you actually receive the funds from the Trustee. If by chance, the proceeds from the sale paid all creditors and administrative costs of the Chapter 7 in full - it is less likely that the Trustee will seek turnover of those funds if you have not reinvested. Meet with a bankruptcy attorney in your area that has experience with this issue.

Timothy Denison

Answered
  • Bankruptcy Lawyer
  • Louisville, KY

A: Contact an attorney immediately. If you do not reinvest, the trustee could come back and seize those funds from you.

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