The bankruptcy court in Massachusetts has ruled that a debtor can claim an exemption under the Massachusetts homestead law even when they are actively planning on moving out.
Bankruptcy judge Joel B. Rosenthal ruled that since the Massachusetts homestead law is written to protect anyone who occupies a building as a residence, the debtor’s intentions about keeping their property in the future are irrelevant.
The question came up in a case where a debtor had a large amount of remodeling work done on his home before selling it, and also shortly before he filed bankruptcy. Several contractors had sued him and obtained liens on the property, but for some reason they were not paid out of the proceeds when the home was sold. After the bankruptcy case was filed, the former homeowner, Alfred McLaughlin, asked the bankruptcy court to remove the liens retroactively.
One of the contractors, Eric Silva, then went in to bankruptcy court and tried to have Judge Rosenthal disallow the debtor’s homestead exemption and keep the liens in place. Silva argued the debtor was acting in bad faith when he had the work on his home done, because he planned to move out, not pay, and file for bankruptcy.
But since the Massachusetts law requires only that a debtor be occupying the home at the time of the bankruptcy filing, the judge ruled that any future plans were irrelevant to claiming the exemption, and therefore bad faith was not proven.
The case is 09-44714, In re McLaughlin.
By Doug Beaton