This case, decided by the Bankruptcy Court for the District of Minnesota formally adopted the “Snapshot Rule” for how the proceeds from selling a house are treated in a Chapter 7 Bankruptcy filed after the sale of the home.
Minnesota debt collection and bankruptcy law says that the money from selling your homestead, called “proceeds,” is protected from creditors and from the bankruptcy court for 1 year after the sale of the house. This is called the “Minnesota Homestead Exemption.”
What did the Bankruptcy Trustee say?
The bankruptcy trustee in the In Re Thomas case asserted that if the house sale proceeds hadn’t been spent to buy a new house within 1 year, then they would no longer be protected from the bankruptcy court and that the bankruptcy trustee would take the money and distribute it to creditors.
What Is The Snapshot Rule
Attorney Walker disagreed and argued a legal brief saying that the only day that matters for determining when the house sale proceeds go into the bankruptcy is the day that the bankruptcy is filed.
He argued that a Chapter 7 bankruptcy is like a snapshot of all of the debtor’s assets and liabilities on the day of filing. If the nature of the assets changes after filing, then it doesn’t matter.
This is called the “snapshot rule” and has been the law in many other states for some time.
Examples of states that follow the snapshot rule for home sale proceeds are Massachusetts and Illinois.
Some states which don’t follow the snapshot rule, and where the sale proceeds go to the bankruptcy trustee if they aren’t reinvested in a new home within a certain time frame after filing, are California, and Texas.
What does this mean for people filing for bankruptcy in Minnesota?
After the Thomas case, Minnesota is firmly in the group of states following the snapshot rule.
This means that so long as you file the bankruptcy within 1 year of when you sold your homestead, you can keep the sale proceeds.
You don’t have to worry about finding a new house to reinvest the sale proceeds before the 1-year mark ends.
Who benefits from the Snapshot Rule?
Anyone who is thinking about selling their house and who also has debt can benefit.
A good example would be someone thinking about retiring. Maybe they want to sell their house and move away, or maybe downsize.
The Thomas opinion means that they can now sell their house and will no longer be forced to spend the sale proceeds on a new house. They could use the money to move or for retirement instead.
If you’re worried about if the proceeds of selling your homestead would affect filing for Chapter 7 Bankruptcy in Minnesota, then this ruling should reassure you.