SW Legal studies in Business

Federal Homestead Limit Applies in Case of Criminal Act
Description

Appeals court held that the federal homestead limit of $125,000 applies when a debtor is criminally liable for an act that triggered the bankruptcy. A criminal conviction need not exist if the circumstances indicate criminal negligence.

Topic Bankruptcy Law
Key Words

Chapter 7; Homestead Exemption; Criminal Act

C A S E   S U M M A R Y
Facts

Larson pled guilty to negligent vehicular homicide. As a result of the accident, she was also sued for wrongful death by the survivors of the driver killed by Larson. The civil litigation resulted in a judgment of $1 million. Larson filed for Chapter 7 bankruptcy and claimed the Massachusetts homestead exemption of $500,000. Plaintiffs in the civil suit objected, contending the exemption should be limited to $125,000 under federal bankruptcy law. It caps exemptions at $125,000 if “the debtor owes a debt arising from … any criminal act, intentional tort, or willful or reckless misconduct that cause serious physical injury or death.” The bankruptcy court agreed that the federal exemption cap applied. The district court agreed. Larson appealed.

Decision

Affirmed. For the federal homestead exemption cap to apply, a debtor need not be convicted of a criminal act. Larson pled guilty to the charges which, under Massachusetts law, allowed the judge to make her subject to probation-like terms. So while she was not actually found guilty, she admitted to the facts necessary for a court to find her guilty, which fulfills the intent of the federal bankruptcy homestead limitation in such instances.

Citation In re Larson, 513 F.3d 325 (1st Cir., 2008)

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