In re Lafferty

United States Bankruptcy Court for the District of South Carolina · Corporations

CorporationsBankruptcyExemptionsHomestead exemptionLien avoidancehomestead exemptionresidenceSouth Carolina

Facts

The debtors, former spouses, claimed homestead exemptions in the Fallen Timber property, a house they jointly owned and on which SCBT held a recorded judgment lien exceeding the property's tax value. Before bankruptcy, the debtors had transferred the property to their romantic partners for no consideration and later had it transferred back; the court found the timing and circumstances tied to SCBT's judgment and the failed sale of the property after the lien was discovered. Testimony about whether and when the debtors actually lived at Fallen Timber was inconsistent, and the court found both debtors not credible, with especially strong evidence that Mr. Lafferty used another address under oath even after filing bankruptcy. The debtors also filed schedules reflecting household expenses they did not actually pay, further undermining credibility.

Issue

Whether the debtors were entitled to South Carolina homestead exemptions in the Fallen Timber property, despite disputed residency and prebankruptcy transfers of the property, and if not, whether they could avoid SCBT's judicial lien under 11 U.S.C. § 522(f). A related issue was whether § 522(o) and the doctrine of unclean hands barred or reduced the claimed exemption.

Rule

Under South Carolina law, a debtor may claim a homestead exemption only in property the debtor uses as a residence. A court may deny equitable relief under the doctrine of unclean hands when the debtor's wrongful conduct has a close nexus to the bankruptcy relief sought. Under 11 U.S.C. § 522(o), the value of property claimed as a homestead must be reduced to the extent attributable to property the debtor disposed of within ten years before filing with intent to hinder, delay, or defraud a creditor. Under § 522(f), a debtor may avoid a judicial lien only to the extent it impairs an exemption to which the debtor would have been entitled.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Evan Mercer filed Chapter 7 in South Carolina and claimed a homestead exemption in a house he co-owns in Charleston. Although he says he "considers it home," he listed a different Greenville address on sworn public-assistance recertifications both before and after filing, stays at the Charleston house only some weekends, and could not accurately describe who sleeps in which rooms there.

Is Evan most likely entitled to the South Carolina homestead exemption in the Charleston house?

Explanation. The majority held that South Carolina's homestead exemption applies only to property the debtor uses as a residence. It found that occasional overnight stays, conflicting testimony, and sworn statements using another address showed the property was not the debtor's residence. On these facts, Evan would likely fail the residence requirement even without any transfer issue. (Derived from In re Lafferty (n.d.).)