10-20973 In re Arnhoelter

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Bankruptcy
Homestead exemption

Where a debtor did not own property when a judgment lien attached, the property was not an exempt homestead, and the debtor could not defeat the judgment by dissolving the LLC that did own it, and purchasing the property.

“The cases relied on by the Debtor do not support his arguments. While broad language in Northern State Bank v. Toal suggests that a judgment debtor who purchases property after a judgment is docketed can claim the property as exempt, the judgment debtor in Toal both owned and occupied the property when the judgment attached. 69 Wis. 2d 50, 230 N.W.2d 153 (1975). In other words, Toal confirms that when a debtor purchases and occupies a homestead, the debtor will be entitled to claim the homestead exemption against existing and future judgments. However, the Wisconsin Supreme Court readily distinguished the situation in which after a lien attaches to property, the judgment debtor attempts “to change the status of the property to exempt it.” Id. at 58, 230 N.W.2d at 157. That is the scenario here, because Kiel’s judgment attached before the Debtor owned the property, and the Debtor’s dissolution of the LLC and transfer of the property is no more and no less than an attempt to change the status of the property to claim the exemption. To the extent that additional judgments were entered against the Debtor after he became the resident owner of the property, i.e., a judgment docketed between the date the deed was recorded and the date the Debtor filed bankruptcy, the Debtor could claim his homestead exemption against that judgment. However, since he did not own and occupy the property when Kiel docketed its judgment, Kiel’s judgment prevails.”

10-20973 In re Arnhoelter

E.D.Wis., Kelley, Bankr. J.