Written by Jason S. Leibowitz, Esq.
Boat owner seeks to use homestead exemption to protect boat slip in bankruptcy
Last week, I had some bankruptcy hearings before Long Island Chapter 7 bankruptcy Trustee Robert L. Pryor. One of the cases that the trustee called first was rather interesting because the debtor was living on a boat and sought to exempt the boat slip by using the homestead exemption.
Bankruptcy attorneys regularly use the homestead exemption to protect a debtor’s home. It was rather unusual that this debtor was seeking to protect a boat slip that he owned, especially considering that he didn’t even own the boat in the slip; he was using a friend’s boat. However, the debtor testified that he lived on the boat which was parked in the boat slip.
Ordinarily, assets such as boats and boat slips are considered luxury possessions that are not protected by exemption statutes. Here, however, the debtor claimed the boat slip was, in essence, a necessity — his home.
Trustee Pryor seriously questioned the validity of this exemption. “We are going to have to look into this,” he said. “I’m not sure you can exempt a boat slip as a homestead.”
At this point, I thought the debtor had a losing proposition. It didn’t seem possible that a debtor can exempt a boat slip in a Chapter 7 bankruptcy.
However, I was really curious about this. Upon returning to the office, I decided to quickly check some case law.
The main question presented at the meeting of creditors was whether the debtor could claim the homestead exemption on a property (the deeded boat slip) that he owned but could not technically live in. I found that although the issue appears to remain unreported in New York, bankruptcy courts in other jurisdictions have weighed in on similar issues.
In one Florida case, the trustee objected to debtor’s claimed homestead exemption and moved to compel the debtor to turn over the boat as he believed it was non-exempt property. The bankruptcy court held that the exemption was proper under the state constitutional and statutory provisions since “the boat was a dwelling house berthed at rented dock space that was deemed land the debtor did not own but which he lawfully possessed.” In re Mead, 255 B.R. 80 (Bankr. S.D. Fla. 2000).
The Mead court added that the boat was a dwelling house since it was equipped as a residence, the debtor actually resided on the boat, and the debtor had no other residence. The Florida exemption expressly extended to such dwelling houses situated on leased rather than owned land, and the connection of the boat to the dock provided a sufficient connection to such unowned land.
Another case involved debtors that attempted to protect not only their boat, but also their deeded slip as their permanent residence. Similarly, it was the trustee’s position that, separately, neither the boat dock slips nor the boat itself can create a homestead because the docks cannot be used as a home without the boat, even if it may have been possible that the boat could be used as a home without the docks. In re McMahon, 60 B.R. 632 (Bankr. W.D. Ky. 1986).
The McMahon court held that the boat dock was what provided the boat with the necessary utilities, and noted that exemption laws in favor of the debtor are to be liberally construed. The court concluded that that the statutory provisions for homestead exemptions satisfy a proper legislative objective by providing the debtor and the debtors dependents with a new financial start, and it is incumbent upon the Court to liberally interpret and construe them so that the end sought to be accomplished may not be defeated.
The court analyzed the several factors in arriving at its determination. Those were the following; the amount of time which the debtors had lived on the boat and that they seemed to have no other residence, that the boat dock slips were real estate to which the debtors have a properly recorded deed, and the boat dock slips were an integral part of the debtors maintaining a residence on the boat by providing the necessary utility hookups.
Finally, the McMahaon court analogized that case to one in which a debtor claims a homestead exemption in the real estate upon which a mobile home or condominium is constructed or rested.
In view of the principle that the exemption laws are to be liberally construed in favor of the debtor, the McMahon court found that both the boat and dock slip comprised the debtors’ permanent residence and qualified for the homestead exemption pursuant to Kentucky law.
The research presses home one of the most important policies contained in this country’s bankruptcy laws: that the Bankruptcy Court will usually liberally construe the law in favor of the debtor so that an honest debtor can eliminate debts and get a fresh new financial start.
Thus, the debtor in this Central Islip bankruptcy case may well be able to keep and protect his boat slip and home after all — and discharge all of his debts as well.
Note: Jason S. Leibowitz, Esq. is a full-time associate in our firm