Another Court Applies Homestead Cap

A bankruptcy judge in Nevada has joined Judge Mark of Florida in concluding that the 522(p) homestead exemption cap applies in all states, and not just those which permit residents to elect between the federal and state exemptions. In re Virissimo, 332 B.R. 201 (Bankr. D. Nev. 2005). As previously discussed here, at least one judge in Arizona has held that the language used by Congress in 522(p) to create a $125,000 cap on exemptions for homesteads purchased less than 1,215 days prior to bankruptcy does not apply in states where the state legislature has prohibited debtors from selecting the federal rather than state exemptions. In re McNabb, 326 B.R. 785 (Bankr. D. Ariz. 2005). A Florida court has held to the contrary that 522(p) can and should be interpreted consistently with legislative intent to impose the cap on all state homestead exemptions. In re Kaplan, 2005 WL 2508151 (Bankr. S.D. Fla. 2005). The different results center on the interpretation of the phrase in 522(p) which renders the cap applicable "as a result of electing under subsection (b)(3)(A) to exempt property under State or local law," and the extent of reliance on legislative history. Judge Riegle in Virissimo joins the Kaplan court in applying the cap broadly.

In divining the plain meaning of 522(p), Judge Riegle concludes that there is an "election" for purposes of 522(p) when a debtor elects to claim property as exempt, and "elects" to do so under 522(b)(3). She suggests that a debtor always "elects" between exemptions under the federal provisions under 522(b)(2) and the state or local provisions under 522(b)(3), even if an "election" to use 522(b)(2) might be ineffective if the state law prohibits use of the federal exemptions and a timely objection is made.

Alternatively, Judge Riegle finds the statute ambiguous in that it is susceptible to multiple interpretations and, like Judge Mark, concludes that legislative history can be relied on when the clearly expressed legislative intent is contrary to the strict language. Also like Judge Mark, the Nevada court had no difficulty discerning Congressional intent to apply the cap to all debtors and not solely those who reside in states that permit the use of federal exemptions.

With three notable decisions already issued, the homestead cap -- which was one of the most frequently discussed BAPCPA changes -- is proving to be a continuing subject of debate and dispute.