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Empty Adjacent Lot Included In Chapter 7 Bankruptcy Homestead Exemption

One of the benefits of filing a Chapter 7 bankruptcy is that you can exempt part of your home equity from the bankruptcy estate, up to a value of $60,000 under Colorado law, or up to $90,000, if you are over the age of 60.

At times, however, questions may arise as to what is included in that “homestead exemption.” For example, what if the debtor also owns an empty lot that adjoins their home? The recent United States Bankruptcy Court case of In re Soles discussed this issue.

A homestead . . . and an adjacent lot

The debtors filed a Chapter 7 bankruptcy petition and listed their home residence, which they had purchased in 1991. That property consisted of three lots, but the debtors also separately listed an adjacent lot. The debtors jointly owned that adjacent lot with a neighbor. The lot was vacant and had never generated any income from rent or otherwise.

In stating their homestead exemption, the debtors included the adjacent lot. The bankruptcy trustee-the person tasked with administering the bankruptcy estate-objected to this exemption because the adjacent lot was not part of the debtor’s residence lot and because it was purchased by the neighbor at a later date. In short, the trustee alleged that the debtors were not using the co-owned lot as a home.

Was the lot part of the home?

Under Colorado law, a homestead may be exempted only when it used as a home by the owner or his or her family. However, in this case, there was no dispute that the debtors occupied the main lot as their residence.

When they became co-owners of the adjacent lot, they increased the size of their home lot, but not their usage of it. The debtors had never used the adjacent lot for any purpose.

In fact, Colorado law stated that a homestead may consist of a house “and lot or lots.” This clearly allowed for a homestead that included more than one lot. There was no requirement that a homestead include only one legal parcel or that all parcels had to be purchased simultaneously, or that the home touched every lot.

Therefore, the United States Bankruptcy Court overruled the trustee’s objection in this
bankruptcy proceeding and allowed the homestead exemption to include the adjacent lot.

Protection of many assets

This case shows one example of how a Chapter 7 bankruptcy may protect some of a debtor’s assets. Other assets protected may include up to $5,000 in equity in a vehicle, retirement savings, and many household goods.

A bankruptcy can provide a fresh start for someone in financial distress. If you are considering a bankruptcy, seek the advice of an experienced bankruptcy attorney who can work through your options with you.