1st Circuit Rules on Limitation of Homestead Exemption Following a "Criminal act."

Larson v. Howell (In re Larson),  --- F.3d ----, 2008 WL 186506 (1st Cir. Jan. 2008 (Mass.))

Issue:   Should the homestead exemption be limited under Section 522(q)(1)(B)(iv) when the debtor was found guilty of a criminal act even though her “criminal” conduct was simple negligence?       

Holding:   Yes, “any criminal act” is sufficient to require a limitation of the exemption.       

The debtor, age 69 at the time, was involved in an auto accident where she hit a motorcycle and the passenger on the bike was killed.  “[The debtor] said she did not see the oncoming motorcycle, but admitted she caused the accident.  The [criminal court] judge found facts sufficient to find Larson guilty of negligent vehicular homicide.”  The survivors sued the debtor in a civil action which was settled for $1 million.  The debtor then filed chapter 7 and claimed a $500,000 homestead exemption under Massachusetts law.  The creditor and the trustee objected under Section 522(q)(1)(B)(iv) “which caps homestead exemptions claimed under state or local law at $125,000 if ‘the debtor owes a debt arising from ... any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years.’”  The debtor argued that the accident was mere negligence and that the statute required an intentional injury.  The bankruptcy court ruled against her and limited the exemption.  The District Court affirmed. 

The Court of Appeals affirmed also.  “Under state law, she effectively pled guilty to the crime.”  The plain language of the code says that the exemption is limited if the debtor owes a debt arising from “any criminal act.”  The language about intentional torts, willful or reckless conduct are preceded by “or,” meaning that “any criminal act” is sufficient.