Texas bankruptcy judge Jeff Bohm has ruled that a chapter 7 debtor who sold his homestead over a year after filing bankruptcy could not keep the portion of the proceeds when he failed to reinvest them within six months. In re Smith, 2014 Bankr. LEXIS 3344 (Bankr. S.D. Tex. 8/4/14). The case concerns the intersection between bankruptcy law, which determines exemptions as of the petition date, and Texas law, which requires reinvestment to maintain the exemption and is part of a continued trend of homestead proceeds at risk
The Debtor filed a chapter 7 petition on March 20, 2012 and claimed his homestead as exempt. No party objected to the exemption. The Trustee did not close the case. On June 21, 2013, the Debtor sold his homestead and received net proceeds of $813,935.77. The Debtor did not reinvest the proceeds within six months. On April 11, 2014, the Trustee filed an adversary proceeding seeking to recover the remaining homestead proceeds in the amount of $700,349.09 from the Debtor. The Debtor filed a Motion to Dismiss.
The Fifth Circuit and the Vanishing Exemption