Funds from Sale of Home Cannot be Taken by Bankruptcy Court

In Viegelahn v. Lopez, a Texas bankruptcy case, the trustee wanted to withhold funds from the sale of thedebtor’s home in order to pay the debtor’s creditors. The trustee lost the lawsuit and the court sided with the debtor. Chapter 13 bankruptcies are voluntary and in that nature, when choosing to voluntarily dismiss a bankruptcy, funds held by the trustee are supposed to be appropriated back to their original form before the start of the bankruptcy petition; by this fact alone, the funds from the sale of the debtor’s house should have been returned to the debtor.  However, had the bankruptcy not been voluntarily dismissed, the Texas court stated that proceeds from the sale of the debtor’s exempt home are not exempt because the proceeds were not reinvested into another exempt home.

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