In the case of In re Pugh, a bankruptcy court in the Southern District of California determined that a family unit homestead exemption under California law was available to the debtor in a Chapter 7 bankruptcy proceeding irrespective of whether his home was his minor daughter's primary place of residence or not.
Background and procedural history
In 2014, the debtor filed a voluntary petition for bankruptcy under Chapter 7. The debtor claimed an exemption of $100,000 in equity in his residence in San Diego, California, under the family unit exemption provided under the California Code of Civil Procedure.
By law, the exemption is applied toward the amount of equity held by the debtor in the property. Equity is calculated by subtracting the amount of any consensual liens (mortgages and deeds of trust) from the fair market value of the property.
a creditor filed an objection to the debtor's claim of a family unit homestead exemption, arguing that the debtor did not qualify for the exemption because he was a divorced parent, and the daughter only stayed with the debtor during parenting times under a shared custody arrangement, but the daughter was not actually living at the debtor's home as her primary place of residence. In support of this argument the creditor cited prior court precedent which held that the family unit exemption could be claimed only if the homestead was also the minor child's primary place of residence.
The bankruptcy court's decision
The bankruptcy court disagreed with the court precedent cited by the creditor. The family unit homestead exemption applied, said the court, because the plain meaning of the exemption statute clearly permits separated parents to each claim the family unit exemption. The language of the exemption statute merely requires that the debtor cares for or maintains the minor child in the homestead for the debtor to qualify for the family unit homestead exemption. The statute's text does not contain any additional requirement that the homestead also be the minor child's primary place of residence, said the court.
In this case, the debtor paid $250 a month in child support for one daughter who is attending college and was apparently no longer a minor. The daughter resided at the debtor's residence on days and weekends when the debtor had custody. The debtor also resided at the residence and undisputed evidence indicated that he cared for and maintained a younger daughter there. This evidence supported the conclusion that the exemption applied to the debtor regardless of whether the younger daughter's primary residence was with the debtor or with the debtor's ex-wife.
Contact an attorney
Individuals facing bankruptcy are urged to seek the advice of legal counsel experienced in such matters to assist them in the protection of their legal rights.