By Linda J. St. Pierre, Esq.

McCalla Raymer Leibert Pierce, LLC *

USFN Member (AL, CA, CT, FL, GA, IL, KY, MS, NV, NJ, NY, OH, OR, TC, WA)

The United States Bankruptcy Court for the District of Connecticut in the Chapter 7 case of In re Elaine M. Cole (Case# 21-21071) held on April 15, 2022, that Connecticut’s Amended Homestead Exemption applies retroactively, thus allowing a Chapter 7 debtor to claim the increased $250,000.00 exemption against claims that arose prior to the effective date of the change in the statute. 

Introduction:

Under Connecticut state law, a debtor may claim a homestead exemption in property that is owner occupied and used as a primary residence.  See Conn. Gen. Stat. §52-352a(5)  On July 12, 2021, Governor Ned Lamont signed Public Act 21-161 (“Act”) into law that amended Connecticut’s homestead exemption by repealing the prior version of the statute, renumbering its provisions, and increasing the exemption from $75,000.00 to $250,000.00 effective October 1, 2021.  See Conn. Gen. Stat. §52-352(b)(21) (“Amended Homestead Exemption”).

Factual Background:

On November 22, 2021, Elaine M. Cole (“debtor”) filed a petition under Chapter 7 (Case# 21-21071) wherein the debtor claimed the Amended Homestead Exemption of $250,000.00 on her claimed residential property located in Mystic, CT (“Property”).  On December 2, 2021, by further amendment on December 27, 2021, the Chapter 7 trustee filed an objection to the debtor’s homestead exemption claiming that although the Chapter 7 case was filed after the amendment of the homestead exemption, the debtor was ineligible to claim the increased exemption because the debtor’s unsecured creditor claims arose prior to the effective date in the change of the statute.  The trustee further claimed that the property was not the debtor’s residence at the time of the Chapter 7 filing.  Lastly, the trustee argued applying the Amended Homestead Exemption would violate the United States Constitution, Article 1 §10 (the Contracts Clause).

Court’s Analysis and Ruling:

The court first turned to whether the p0roperty was the debtor’s residence at the time of her Chapter 7 filing because if the answer was yes, then the trustee’s objection to the debtor’s Amended Homestead Exemption must be sustained which ends the court’s inquiry.  If the answer is no, then the court must determine whether the Amended Homestead Exemption applies retroactively. 

After conducting an analysis of the facts and testimony surrounding the residential status of the property at the time of the debtor’s petition filing, the court found the trustee had failed to satisfy his burden in demonstrating the debtor’s property was not the residence of the debtor at the time of her petition filing.  With that affirmative answer, the court then proceeded to determine whether the Amended Homestead Exemption applied retroactively, thus enabling the debtor the benefit of the increased exemption.

In its second analysis, the court conducted an in-depth review and analysis of Connecticut’s original 1993 enactment of the homestead exemption (“Original Homestead Exemption”) against the Amended Homestead Exemption.  The court noted that while the 1993 Act that passed the Original Homestead Exemption expressly provided within Clause 3 of that statute, “This act shall take effective October 1, 1993, and shall be applicable to any lien for any obligation or claim arising on or after that date,” the court noted the Amended Homestead Exemption made no clause reference to its applicability. The court further cited David v. Forman Sch., 54 Conn. APP. 841, 853-54 (1999) (citing State v. Magnano, 204 Conn. 259, 284 (1987) “Whether to apply a statute retroactively or prospectively depends on the intent of the legislature in enacting the statute.” The court further cited several Connecticut decisions surrounding the applicability of the Original Homestead Exemption. Ultimately, the court stated that unlike the original Act that enacted the Original Homestead Exemption, which expressly limited its applicability “to any lien for any obligation or claim arising on or after [its effective] date,” the 2021 Amended Homestead Exemption contained no clause addressing whether it applies to pre-enactment debts. The court stated it would refrain from reading an anti-retroactivity provision into the 2021 Act given there was no clear expression of legislative intent to the contrary. 

Lastly, in response to the trustee’s argument that applying the Amended Homestead Exemption would violate the United States Constitution, Article 1 §10 (the Contracts Clause), the court further stated that the Amended Homestead Exemption “while allegedly modifying the expectations of the parties, does not substantially interfere with the parties’ reasonable expectations under a contract……and does no more to the parties’ expectations than if the debtor took a second mortgage out on the property, thereby significantly reducing the amount of equity available to creditors.” 

The decision in this case arguably impairs the rights of those creditors who held liens prior to the enactment of the Amended Homestead Exemption.  Those creditors would have assumed they were entitled to any equity over and above the existing $75,000.00 homestead exemption only to now realize that they are only entitled to any equity over and above the new $250,000.00 exemption. 

@Copyright 2022

June 2022 e-Update