Negligent Vehicular Homicide Caps a Debtors Homestead Exemption

By: Christine Knoesel

St. John's Law Student

American Bankruptcy Institute Law Review Staff

 

In an expansive reading of the homestead cap added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the First Circuit Court of Appeals, in Larson v. Howell, held that criminal negligence is sufficient to trigger the cap.

[1]

  The BAPCPA provision, section 522(q)(1)(B)(iv) of the Bankruptcy Code, applies a $136,875 cap on the homestead exemption where the “debtor owes a debt arising from any . . . criminal act, intentional tort, or willful or reckless misconduct.”

[2]

  In Larson, the debtor was driving her van in Massachusetts and took a shortcut through a parking lot, striking the oncoming motorcycle of Howell.  Howell’s wife, a passenger, died as a result of the accident.  In the criminal case, the judge found facts sufficient to find Larson guilty of negligent vehicular homicide.

[3]

  In the bankruptcy proceeding, the Court of Appeals reasoned that use of the word “or” in the section 522(q)(1)(B)(iv) list of triggering acts indicates that criminal acts are separate triggers to the subsection, independent of any intent or recklessness.

[4]

 The court also determined that the debtor need not be convicted of the crime, holding that section 522(q)(1)(B)(iv) applies “wherever the debtor’s debt arises from . . .  any criminal act.”

[5]

 Therefore, the provision is triggered whenever one admits to facts sufficient for a finding of guilt, as Larson did.  The court concluded that the cap on the homestead exemption applies to Larson because her act was a crime of negligence and her debt to Howell arose from that criminal act.

 

The section 522 exemption provision is designed to ensure that a debtor can maintain an appropriate standard of living by allowing the debtor to exempt property during a bankruptcy case.  Section 522(q) establishes a homestead cap based on certain criminal or unlawful conduct.  The party objecting to the exemption must be able to prove that the criminal conduct and the bankruptcy proceeding are somehow connected “such that the bankruptcy filing would be deemed an abuse.”

[6]

    One way this connection may be shown is by proof “that the debtor is attempting to discharge civil liability owing to victims of the crime.”

[7]

  Courts have found that various types of criminal conduct can trigger the homestead exemption cap.  Convictions for conspiracy and wire fraud, if proven, may be sufficient to meet the requirements of §522(q).

[8]

 Also, if the debtor acts to hinder, delay, or defraud the creditor, then it is appropriate for the court to apply the federal statutory limitation to his homestead exemption.

[9]

 

 

In reaching its conclusion that negligent criminal conduct is sufficient, the Larson court applied a plain language analysis and rejected a House conference report from 2002 stating that the cap should only apply to conduct that rises above negligence.  The court stated that “legislative history does not trump unambiguous statutory text.”

[10]

 Both aspects of the court’s decision – (1) that intent and recklessness need not be present to trigger the cap, and (2) that no conviction is necessary - have serious implications for future cases.  Many state and federal statutes criminalize conduct that falls below the level of willful or reckless conduct.  In cases where the applicable state homestead exemption exceeds the cap, creditors will have an incentive to argue that the circumstances giving rise to their claims come within the scope of the criminal provision. And the absence of a conviction will be no bar.



[1]

513 F.3d 325, 328 (1st Cir. 2008).

[2]

11 U.S.C. §522 (2008), amended by 11 U.S.C. §522(q) (2007) (raising the dollar amount of the cap from $125,000 to $136,875 for cases commenced after April 1, 2007).

[3]

Ibid. at 327.                                                                                                         

[4]

Id. at 328.

[5]

Id. at 330.

[6]

3 Collier on Bankruptcy, ¶522.13[3][b] at 102.7 (Alan N. Resnick et al. eds., 15th ed. rev. 2007).

[7]

Id.

[8]

In re Farber, 355 B.R. 362, 371 (Bankr. S. D. Fla. 2006).

[9]

In re Presto, 376 B.R. 554, 597 (Bankr. S. D. Tex. 2007).

[10]

Larson v. Howell, 513 F.3d 325, 329 (1st Cir. 2008).