by Adam Mack, JD
For a homeowner facing bankruptcy their home may be their most valuable asset; of course, this assumes that the home has equity in it and is not in disrepair. Naturally, one of the most common questions I am asked is, “What will happen to my house if I bankruptcy in Kansas?” The good news is that Kansas has an unlimited homestead exemption as long as you meet its qualifications (i.e. you must have lived in1215 days – approx. 40 months ).
However, no law would be compete without its exceptions. One such exception is the Exemption Reduction Exemption. You must be careful when trying to convert your non-exempt assets into exempt assets. While a certain amount of “bankruptcy estate planning” (convertingnon-exemptassets to exempt) is allowed in the 10th Circuit, there is a line that can be crossed where your maneuvering around of assets can resultin the court reducing the amount of the exemption you can claim.
Judge Janice Karlin of the Federal District Bankruptcy Court in Topeka, Kansas gave an excellent analysis of this issue in In re Keck, 363 B.R. 193 (Bankr. D. Kan. 2007). In the Keck case, the debtor who filed bankruptcy essentially took out cash advances on his credit cards and then used that money to pay off a home equity line of credit on his house and to make home improvements, including installing a new driveway. Presumably, he did this believing that the credit cards he took the cash advances from would be discharged in bankruptcy while the improvements to his house wouldbe an exempt under the very generous Kansas Homestead Exemption.
Under circumstances such as the Keck case, the Court may, on the motion of a creditor or the United States Trustee, reduce the amount of the exemption that is claimed by an amount equal to the value that was disposed of by the debtor. However, for the court to do this, the moving partymust prove four elements. The Court must find (1) that the debtor disposed of property within the 10 years preceding the filing of the bankruptcy petition, (2) that the proceeds from such disposition were used to increase the value of the debtor’s homestead (or other exempt property), (3) that the property disposed of was not itself exempt, and (4) that in doing so, the Debtor acted with the intent to hinder, delay or defraud a creditor. See 11 U.S.C. § 522(o).
You can, and probably should, do some bankruptcy estate planning prior to filing your case, but it is crucial to remember that you, as the debtor, are getting the lion’s share of the benefit out of your case. You may have to surrender certain non-exempt assets, but you are going to be allowed to walk away from your debts and start fresh. Since so much of the benefit falls on the side of the person filing for protection, that person is under a heavy burden to be honest and complete in his or her bankruptcy petitions and schedules. As you prepare yourself and your assets to file bankruptcy, you should meet with an attorney and discuss how best to maximize the benefit of a Chapter 7 or 13 filing, while staying on the right side of the law.
These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!