Breaking News: Supreme Court Rules Debtor's Homestead Exemption Cannot Be Surcharged

On behalf of Macdonald Fernandez LLP on Tuesday, March 4, 2014.

In Law v. Siegel (In re Law), No. 12-5196, 571 U.S. ___ (March 4, 2014), today the Supreme Court ruled that a bankruptcy court may not surcharge the homestead exemption as a result of the debtor's misconduct. The bankruptcy court had determined that the debtor created a fake loan to preserve equity in his residence beyond what he was entitled to exempt and perpetrated a fraud on his creditors and the court. Accordingly, the court surcharged the debtor's homestead exemption to reimburse the trustee's attorney fees. The surcharge was upheld on appeal to the Bankruptcy Appellate Panel and the Ninth Circuit Court of Appeals. The Supreme Court reversed.