May an individual in bankruptcy claim an automatic homestead exemption on real estate they occupy as their personal residence when title is vested in an LLC which is co-owned by the individual and their spouse?

In re: Schaefers

Facts: A creditor obtains a money judgment against an individual. The individual occupies real estate as their personal residence which property is vested in an LLC co-owned by the individual and their spouse as their alter-ego. The individual files a petition for bankruptcy protection and claims an automatic homestead exemption to protect their interest in the residential property vested in the LLC.

Claim: The individual claims they are entitled to an automatic homestead exemption since they occupy the property as their personal residence and the LLC which owns the property is their alter ego.

Counterclaim: The creditor claims the individual is not entitled to an automatic homestead exemption since the LLC owned the property and the individual’s interest in the LLC is personal property which cannot be a homestead.

Holding: A United States bankruptcy appeals court holds the individual as a debtor under a bankruptcy petition may not claim an automatic homestead exemption since the individual’s ownership interest in the LLC is personal property and cannot be the subject of a homestead exemption. [In re Schaefers (9^th Cir. BAP 2020) 623 BR 777]

In re: Schaefers

Related Reading:

Legal Aspects of Real Estate Chapter 33: Automatic and declared homesteads