This is the question posed in the recent case of In re Martiny, 2007 WL 3326585 (Bkrtcy.W.D.N.Y.,2007). The debtors, husband and wife, filed a Chapter 7 bankruptcy after entering into a contract to sell their residence at 90 East Terrace Avenue in Lakewood, New York. Before finalizing either step, Mr. and Mrs. Martiny used $36,000 of otherwise non-exempt assets to reduce the balances due on obligations secured by mortgages on their home. Although they had already contracted to sell their residence to a third party, the debtors still lived on the premises. Accordingly, in schedules filed with their bankruptcy petition, the debtors claimed a homestead exemption. On May 21, the debtors moved to compel the trustee’s abandonment of the East Terrace property, so that they might consummate the proposed sale. As an interim measure, the debtors and their trustee agreed to close the transaction, but to place the net proceeds into escrow until a resolution of the trustee’s objection to the claim for a homestead exemption.
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