Q: If I file chapter 13, and I’m making my monthly payments…..can I sell my home, pay off the bankruptcy plan payments,
Can I keep the remainder of my home equity?
Yes, you should be able to do that once your Ch. 13 Plan is confirmed. The First Circuit has adopted the “complete snapshot rule” whereby the petition date sets the date for establishing exemptions. So, for instance, if a Chapter 13 debtor were to schedule his home at $300,000.00 with a $150,000.00 mortgage and $150,000.00 exemption, and then sell it through a sale plan, converting the $150,000.00 of equity to cash, he would, under MA law, only be permitted to retain his homestead exemption on the cash for 1 year and would have to reinvest it by that time or lose the exemption. Because the snapshot rule effectively freezes in time the nature and extent of the exemption, the 1 year requirement does not apply in a bankruptcy context because when the case was filed, the debtor had an exemption in the entire amount of the equity that was not subject to that temporal restriction, which arose post-petition after the sale. In other words, because the equity was exempt under 522(c) when the case was filed, it always remains unavailable to satisfy a prepetition claim because it was exempt at the outset. Following the same logic, if a bankruptcy case were filed after the sale, the debtor’s exemption might be subject to the temporal restriction because that was the nature and extent of the exemption the debtor had when the case was filed. That is the Williams case (also cited in Mbazira) which CJP disagrees with. In dicta, the Judge reasons that whether analyzed under preemption (as in Williams) or the snapshot rule (as in Cunningham & Rockwell), any “vanishing” exemption runs afoul of the Code and would be deemed preempted. By my memory, this reasoning is consistent with an old Judge Hillman decision that was affirmed by the First Circuit in which he held that the unrestricted real estate exemption under 522 preempted the antecedent debt exceptions in the MA homestead statute and when electing to take state exemptions under 522(c), the exemption was not subject to the state law restrictions. I think the name of that case was Weinstein.
The snapshot rule also applies to Chapter 7s, so even if a Chapter 13 debtor were to convert to Chapter 7 after the sale, the sale proceeds should continue to be exempt. For practical reasons, I would be wary of an overly aggressive Chapter 7 trustee trying to challenge that.
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