Homestead Cap Gets Another Adherent

Another Florida bankruptcy judge, this time in Tampa, has given broad application to the new BAPCPA provision capping the exemption for homesteads acquired less than 1,215 days before bankruptcy. In In re Landahl, __ B.R. __, 2006 WL 506034 (Bankr. M.D. Fla. 3/2/06), Judge May joined several other judges who have held that the BAPCPA amendment limiting the homestead exemption to $125,000 applies in all states and not only those which give their residents a choice between the federal and state exemption schemes. A list of the prior posts on this subject appears at the bottom of this post.

As previously discussed here, two Florida judges have already reached the same conclusion, as have two judges in Nevada. In re Kaplan, 331 B.R. 483 (Bankr. S.D. Fla. 2005); In re Wayrynen, 332 B.R. 479 (Bankr. S.D. Fla. 2005); In re Virissimo, 332 B.R. 201 (Bankr. D. Nev. 2005); In re Kane, 336 B.R. 477 (Bankr. D. Nev. 2006). One Arizona bankruptcy judge has reached a contrary conclusion and found that the plain language of 11 U.S.C. 522(p), by which the cap is triggered "as a result of electing under subsection (b)(3)(A) to exempt property under State or local law," means that it does not apply in states where the state law does not permit such an election. In re McNabb, 326 B.R. 785 (Bankr. D. Ariz. 2005). The judges applying the cap broadly have gotten there by a variety of means: in Kaplan, by finding the statutory language ambiguous, in Virissimo, by finding it to refer to the election to claim exemptions (rather than the election of state vs. federal law), and in Kane by finding the election reference to be a scrivener's error which can be corrected to be consistent with the legislative intent. Judge Haines in McNabb, however, thought it unnecessary to consider the legislative intent and found the language clear and unambiguous.

Judge May in Landahl does not criticize Judge Haines' reasoning -- to the contrary, he describes McNabb as a "well-crafted opinion that points out a number of the drafting problems inherent to BAPCPA". Nonetheless, he sides with Kaplan, Virissimo and Kane. By way of further elaboration, Judge May explains that it would be "irresponsible" for the court to rule that an amendment added to existing law after considerable debate is inoperative in circumstances that are not clearly spelled out in either the statute itself or the legislative history. Rather, the link of the "electing" language in 522(p) to the state vs. federal election requires the court to "connect the dots" to get to the election described in 522(b)(1) (describing the option to choose between state and federal exemption laws). The language of new 522(p) doesn't refer to 522(b)(1), but rather refers to (b)(3)(A) (which is the provision under which state law exemptions may be used).

Accordingly, Judge May -- like Judge Riegle in Virissimo -- finds that the "electing" language can plausibly be read simply as referring to the act of claiming an exemption for homestead property under state law in any given case. He adopts this reading as being both consistent with the other provisions of the statute, and giving the statute a meaning consistent with the legislative history.

One interesting side-note on Landahl. The scenario the BAPCPA amendment was intended to protect against was the prodigal debtor who stiffed his creditors but acquired an expensive homestead in a state with an unlimited exemption, then later filed bankruptcy and sought to keep the expensive house. In Landahl, however, the debtor did not even buy the homestead, but rather had inherited his interest in the property less than 1,215 days before the petition was filed. The means of acquiring it made no difference to the result, though, and the cap was deemed to apply.

For more on the homestead cap, see:
Another Judge Applies Homestead Cap Broadly; What Would Scalia Do?
Homestead Havens Still Viable?
Florida Bankruptcy Judge Applies Homestead Cap
Another Court Applies Homestead Cap
Another Florida Judge Joins Homestead Debate
Also see the ABI Journal written with my colleague David Samole, "Homestead Exemption No Longer Debtor's Paradise".