In re Drenttel

Bradley and Mary Drenttel (debtors) lived in Minnesota until June 2003, when they sold their Minnesota home and bought a house in Arizona. The Arizona property was valued at $181,682. On July 17, 2003, the Drenttels filed for Chapter 7 bankruptcy in Minnesota. The Drenttels claimed that their Arizona property was exempt from their bankruptcy estate under Minnesota’s statutory homestead exemption, which allowed debtors to exempt up to $200,000 for the house and accompanying land owned and occupied by the debtor as the debtor’s dwelling place. Minnesota courts had traditionally construed the statutory homestead exemption liberally in favor of debtors to advance the state’s goals of ensuring debtors’ stability and connection to their communities. Bankruptcy trustee Mary Jo Jensen-Carter objected to the Drenttels’ claimed exemption, asserting that Minnesota’s homestead exemption could not be applied to real property located outside Minnesota. The bankruptcy court sustained Jensen-Carter’s objection, but the bankruptcy appellate panel (BAP) reversed. The BAP concluded that under 28 U.S.C. § 1408, Minnesota was the Drenttels’ domicile for purposes of their bankruptcy case because in the 180 days preceding the bankruptcy filing, the Drenttels had lived in Minnesota longer than they had lived in Arizona. The BAP then recognized that under 11 U.S.C. § 522(b)(2)(A), the Drenttels could exempt from their bankruptcy estate any property that was exempt under federal law or under applicable Minnesota law, as the place of the Drenttels’ bankruptcy domicile. Because the Arizona property’s value was within Minnesota’s $200,000 homestead exemption, the BAP held that the Drenttels had appropriately claimed the exemption. Jensen-Carter appealed to the Eighth Circuit, arguing that applying the exemption to the Arizona property was inappropriate under Minnesota’s choice-of-law rules.