The Federal Appellate Panel for the 8th Circuit Court of Appeal recently held if a Debtor makes payments toward home improvements in an attempt to defraud a creditor, that those payments may not be exempt. The issue for decision in this case was whether a debtor can claim home improvement payments as being exempt from the bankruptcy estate in a Chapter 7 bankruptcy case?
The facts in this case were actually quite typical and could apply to a number of people. The Debtors (Wife and Husband) made improvements to their principal residence over a period of time before filing for Chapter 7 Bankruptcy. During that time their daughter opened a bank account whereby Debtors began to make large deposits amounting to approximately $60,000.00 into their daughter’s bank account who then made payments toward the home improvements as well – in addition to other family members.
Debtor’s eventually filed for protection under Chapter 7 of the bankruptcy code after having engaged in this course of conduct for some time. In their Petition they attempted to take advantage of the homestead exemption by claiming that they had roughly $60,000.00 of equity in their home. The “homestead exemption” prevents the court from seizing and distributing that property to any creditors or the Court which may exist as equity in a personal residence. Using Title 11 of United States Code section 522(o) the Bankruptcy Trustee objected to the debtors’ exemption claiming that the improvements did not qualify under the homestead exemption since the money had come through their daughter’s account and was being claimed by the debtors as exempt to delay, hinder, and/or defraud their creditors.