Wednesday, September 18, 2013

Florida Home Exempt as Rhode Island Homestead Exemption Applies Extraterritorially

Chapter 13 Bankruptcy and Chapter 7 Bankruptcy - Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. He has filed over 8,000 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.

The Bankruptcy Court of the Southern District of Florida recently ruled that a Chapter 7 debtor, who was required to use the Rhode Island exemptions due to his previous domicile in Rhode Island, was allowed to exempt his Florida home under the Rhode Island homestead exemptions. In re Jevne, 2008 WL 906533 (Bankr.S.D.Fla. April 2, 2008)(Hyman, J.).

In this case, pursuant to section 522(b)(3)(A), the debtor was required to use the Rhode Island exemptions as he was not domiciled in Florida for the entire 730 day period prior to his bankruptcy filing and he was domiciled in Rhode Island for the great part of the 180 day period prior to the 730 day period. The court characterized the provisions of section 522(b)(3)(A) as a "choice of law" provision. The court stated that Rhode Island's statutory homestead exemption would apply if it applied extraterritorially. The court noted that while some states homestead statutes' plain language limit their application to property within the state, homestead statutes in other states are "silent" on the propriety of their extraterritorial application. The court concluded that if the language of a state's homestead statute restricts its application to property located within the state, the statute cannot be given extraterritorial effect, but if the homestead statute is silent as to its extraterritorial effect, the court will review that state's case law precedent to determine if the homestead statute can be applied to property outside of the state. See eg In re Dentrell, 403 F.3d 611 (8th Cir. 2005), In re Arrol, 170 F.3d 934 (9th Cir.1999). The court found that the Rhode Island homestead statute was silent as to its extraterritorial effect and that there was an absence of case law as to the issue of its extraterritorial application. Therefore, the court allowed the debtor to apply the $300,000 Rhode Island homestead exemption statute to exempt his Florida residence.

It should be noted that there is a distinction in the court's ruling from that of the Eight Circuit in Dentrell. Here the court held that when the prior state's homestead statute is silent, it would look to the state's case law, including apparently its principles of comity and choice of law, as to whether it may apply extraterritorially. It that sense, there would be a second choice of law consideration after the application of section 522(b)(3)(A)'s initial "choice of law" provision. In contrast, the Dentrell court held that the bankruptcy code incorporates applicable state law exemptions without incorporating the state's comity and choice of law principles.

In Dentrell, the trustee argued that while the prior state's statute was silent on the issue of extraterritoriality, it should not be applied to real property in the debtor's new state, as states traditionally do not give extraterritorial effect to statutes relating to the ownership of real property. The Dentrell court noted that this general rule is based on state interpretation of state law and that it may not apply with equal force in the context of a federal statute as "[t]raditional concerns respecting the dignity and sovereignty of other states and limiting jurisdiction to the state borders are simply inconsistent with the national effect and supremacy of federal law. In re Drentell, 403 F.3d 611, fn.1. The Dentrell court rejected the trustee's argument which was not based on the state's statutory language but rather on the state's comity and choice of law principles. The court noted that to adopt the trustee's argument, would require it to construe the phrase "the law that is applicable" as used in section 522(b)(2)(A) (now 522(b)(3)(A)) to refer to the whole of the state's law. Furthermoe, the court further noted that if the prior state's principles of comity and conflicts of law were applied, the bankruptcy court would have to consider whether the prior state would apply the new state's homestead exemption law to real property in the new state and in effect reverse the choice of law provision of 522(b)(2)(A).

The court was not persuaded that the phrase "the law that is applicable" of 522(b)(2)(A) invoked state choice of law rules. The court stated that "[r]eferences to state exemption statutes do not invoke the entire law of the state" and that "[c]ongress used state-defined exemptions as part of a federal bankruptcy scheme, while limiting the application of state policies that impair those exemptions." Owen v. Owen, 500 U.S. 305 (1991)(finding no inconsistency in the policy of permitting state-defined exemptions while disfavoring waiver of exemptions and impingement of liens on exemptions), Butner v. United States, 440 U.S. 48 (1979)(acknowledging that property interests normally governed by state law could be analyzed differently if some federal interest requires a different result). The Dentrell court held that the homestead statute of the prior state of domicile would be applied without regard to its choice of law rules and that its choice of law jurisprudence is irrelevant. See Collier on Bankruptcy, 15th Edition Revised, para 522.06 (2008). In short, there is a distinction between the holdings in Jevne and Drentell, as the court in Jevne would look to the state's principles of comity and conflicts of law as to whether a state's homestead statute that is silent on the issue would apply extraterritorially, while the court in Drentell would not apply the state's principles of comity and conflicts of law.