UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
SYLVIA DUPEE HARGADON
DEBTOR CASE NO. 94-30158
This matter is before the Court on the Objection to Debtor's Claim of Homestead Exemption filed herein on July 26, 1994, by Machias Savings Bank ("the Bank"), a creditor of the debtor. The debtor has not filed a response. The Objection was heard on November 17, 1994, and is now ripe for decision.
The record in this case indicates that the debtor filed her Chapter 7 petition in this Court on May 31, 1994. Her petition noted that the Bank had obtained a judgment against her in an action styled Machias Savings Bank v. Sylvia Dupee Hargadon, MAC-92-CV-108. On Schedule C of her petition she claimed an exemption in a house and 12 acres in Waddy, Kentucky. On June 14, 1994, she amended Schedule C to reflect that she was claiming the exemption under KRS 427.060, the homestead exemption statute.
The Bank states, without contradiction, that the debtor and her former husband purchased the property in which she claims an exemption in 1992, and that the debtor's debt to the Bank was created in 1989. This debt was reduced to judgment in the Maine state courts on March 24, 1993. The judgment was registered in the Kentucky courts on April 18, 1994. A Notice of Judgment Lien was filed in the Shelby County Clerk's office on May 10, 1994. The trustee abandoned interest in the property on August 24, 1994.
The Kentucky homestead exemption statute, KRS 427.060 provides in pertinent part:
In addition to any exemption of personal property, an individual debtor's aggregate interest, not to exceed $5,000 in value, in real or personal property that such debtor or a dependent of such debtor uses as a permanent residence in this state, .... is exempt from sale under execution, attachment or judgment, except to foreclose a mortgage given by the owner of the homestead or for purchase money due thereon. This exemption shall not apply if the debt or liability existed prior to the purchase of the property or the erection of the improvements thereon.
The Bank points to the language at the end of the provision as effectively eliminating the exemption for debts which existed prior to the purchase of the property.
Whether or not an exemption is available to a debtor is a question of state law. Kentucky courts have ruled on the issue raised by the Bank. In Mullins v. Robinson, 9 S.W.2d 988, Ky. (1928), the then Court of Appeals stated:
It is not necessary to determine whether ... Mullins might claim an exemption of a homestead in this property if the facts were otherwise. The debt existed prior to the purchase of the land, and the erection of the improvements thereon, and for that reason it is not exempt from execution under section 1702, Ky. Stats (the precursor of KRS 427.060).
At page 989. Both the bankruptcy and district courts in Kentucky have recognized that this is the case. See In re Conyers, 129 B.R.470 (Bkrtcy.E.D.Ky 1991) and In re Brooks, 71 B.R. 6 (W.D.Ky 1986).
In accordance with the above, the Bank's judicial lien is superior to the homestead exemption claimed by the debtor. An order in conformity with this opinion will be entered separately.
By the Court -
Donald T. Prater, Esq.
David W. Williams, Esq.
Mark T. Miller, Esq., Trustee