Tuesday, April 18, 2006

Conviction Not Required to Prompt Homestead Exemption Cap for "Criminal Act"

In prior posts, we have discussed the new BAPCPA provisions imposing a dollar cap on the homestead exemption which can be claimed by debtors. In a matter of first impression, however, Judge William C. Hillman in In re Larson, 2006 WL 891532 (Bankr.D.Mass. 4/5/06) was faced with the issue of whether the $125,000 exemption cap provided by new Section 522(q)(1)(B)(iv), which is applied to debts arising from certain "criminal acts" causing death or serious physical injury within the prior 5 years, required a conviction or a certain level of culpability for such act.

In Larson, the debtor was involved in a tragic automobile accident in September 2002, wherein the passenger in the vehicle she hit did not survive. The debtor was charged with motor vehicular homicide by negligent operation under Massachusetts state law. Judge Hillman noted that the state court transcript (which was attached to the objection to exemption and in which the debtor admitted sufficient facts regarding the act in state court) revealed that the state court judge found facts sufficient to find the debtor guilty. The state court judge continued the matter without a finding for one year during which time the debtor was placed on supervised probation. In addition, the driver of the other automobile obtained a $1,000,000 civil judgment against the debtor.

When the debtor filed her voluntary Chapter 7 petition on October 11, 2005, she listed on Schedule A a single family residence with a market value of $544,000 subject to a secured claim of approximately $87,000. On Schedule C, the debtor claimed an exemption of $500,000 for the residence under Massachusetts law. The Chapter 7 trustee and the driver of the other automobile filed objections to the claimed homestead exemption and argued that the $500,000 claimed exemption must be reduced to $125,000 pursuant to new Section 522(q)(1)(B)(iv) since the automobile accident debt arose from a "criminal act" that caused death to another individual within the preceding 5 years. (Note: unlike most of the BAPCPA provisions which became effective in October 2005, 522(q) became applicable immediately upon the effective date of BAPCPA back in April 2005) .

The debtor responded that neither the Bankruptcy Code nor BAPCPA define "criminal act," and that Congress must have meant to include conduct involving something greater than negligence. The debtor pointed to legislative history that included an earlier version of the statute providing that the language in Section 522(q)(1) should be construed liberally to encompass misconduct that rises above mere negligence. In fact, the debtor opined that Congress may have even intended that the "criminal act" requirement could be met only by means of a conviction, which did not occur in this case. In addition, the debtor argued that, under Massachusetts law, her charge involving negligence was lesser than reckless conduct. Finally, the debtor argued that the homestead cap should not apply because her claimed homestead was necessary for her support under new Section 522(q)(2).

As a threshold matter, Judge Hillman noted that the statutory list found in 522(q)(1)(B)(iv) reducing the homestead cap was disjunctive, and that he only needed to find that such debt arose from a "criminal act," not needing to find that the act was also an intentional tort and willful/reckless conduct. Judge Hillman surveyed various case law including Massachusetts law which recognized that the phrase "criminal act" does not require a conviction or a certain level of culpability. Most pointedly, Judge Hillman found that Congress did not specifically require a conviction for purposes of Section 522(q)(1)(B)(iv), but did so in Section 522(q)(1)(A), which provides that a homestead exemption be reduced to $125,000 if the court determines after notice and a hearing that the debtor has been "convicted" of a felony which demonstrates that the bankruptcy filing was an abuse. Judge Hillman followed the long-standing principle of statutory construction that the inclusion of particular language in one section but the omission of such language in another is intentional and done with purpose. Based on the above-described findings, Judge Hillman found the term "criminal act" clear and did not lead to an absurd result and, as such, he did not need to look to legislative history.

Since the record evidence indisputable established that the debtor had committed the act at issue, Judge Hillman found that the cap applied and scheduled a further evidentiary hearing where the debtor may present evidence as to whether the difference between her claimed and capped homestead is necessary for her support pursuant to Section 522(q)(2).

1 comment:

News & Information said...

I am not familiar with all of the facts in the case, but based on what you have written, my opinion is that the exemption should apply.