In re Watson: Homestead Abandonment

Judge Brian Kruse’s recent opinion in In re Watson is poised to become the go-to authority on homestead abandonment in Nebraska bankruptcy cases. 🏠The Story Behind the Case

• Debtor buys home in Omaha before marriage.
• Marriage deteriorates; wife files for divorce.
• Debtor moves out during separation, living in hotels, campsites, and eventually renting a house with his new girlfriend.
• State divorce court orders the home to be sold.
• Debtor moves back into the home after wife vacates.
• Debtor files Chapter 7 bankruptcy and claims a homestead exemption.
• Creditor objects, arguing the home was abandoned.
• The agreed value of the home was $320,000 and it was subject to a mortgage lien of $135,220. Thus, the home has $176,780 of equity.
• The Nebraska homestead exemption grants each natural person $120,000 of homestead exemption.

⚖️ The Legal BattleThe creditor, David Hospodka, pointed to a long list of facts suggesting abandonment, but Judge Kruse wasn’t convinced. He found that the debtor never intended to abandon the homestead, maintained ties to the property, and returned before filing bankruptcy. Conclusion: No abandonment occurred. Even if it had, the debtor reestablished residency before filing, which is what matters for exemption purposes.💡 Why This Case Matters

• Strong Defense of Homestead Rights: Temporary absence doesn’t equal abandonment if the debtor maintains ties and intends to return.
• Rooker-Feldman Doctrine Rejected: Federal court can review homestead claims even if the divorce court ordered the home to be sold. Such an order is not inconsistent with the homestead exemption and does not establish abandonment.
• Reestablishment Is Possible: Debtors can reclaim the homestead by moving into the home before filing bankruptcy.

🧨 The Bombshell: Marital Interest Without TitlePerhaps the most explosive takeaway comes at the end of the opinion: Judge Kruse ruled that a non-titled spouse still holds a real, equitable interest in the home. This means title ownership isn’t everything. For bankruptcy purposes, the debtor’s interest is only half the home’s value. This affects Chapter 13 liquidation value, lien avoidance, and exemption calculations.This home had $176,780 of equity and the debtor’s wife was not on the home title. But the Nebraska homestead exemption grants each natural person a $120,000 exemption, and the court rules that the wife did have an equitable interest in the home. Judge Kruse cites two Nebraska cases to support this position:

Parker v. Parker, 681 N.W.2d 735, 744 (Neb. 2004) (“[A] lien of judgment does not attach to the mere legal title where the equitable and beneficial interest is in another.”); Scoular Grain Co. v. Pioneer Valley Sav. Bank, 447 N.W.2d 38, 40 (Neb.1989) (“[A] judgment lien on real estate in the name of the judgment debtor is a lien only on the actual interest of the judgment debtor and is subject to all existing equities whether of record or not.”)

Does it make a difference that the debtor was in a divorce and that the court ordered the home to be sold? That question is not answered, but the cases cited do not seem to limit this concept to divorce cases. 📌 Final ThoughtsJudge Kruse’s opinion in Watson is a powerful opinion on Nebraska homestead law. For Nebraska practitioners, this case is essential reading—and a powerful tool in defending homestead exemptions.