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J. Michael Springmann wants to keep his house. The 59-year-old D.C. solo practitioner is $130,000 in the hole, has a failing law practice, and has no health insurance. So he sought protection in Bankruptcy Court in October, thinking that he could use a new D.C. law to keep creditors from taking his home. But if Springmann thought filing for bankruptcy would ease the financial pressures on him, he now finds himself in a more perilous situation. The trustee assigned to Springmann’s case is going after the home anyway, and may use the case to test D.C.’s homestead exemption, a law passed in 2001 that allows residents to keep their houses out of the hands of bill collectors. If the trustee succeeds, thousands of D.C. homeowners could lose one of the nation’s most generous bankruptcy protections. Springmann could make it all go away by selling the three-bedroom colonial he inherited from his aunt nearly a decade ago. Located near American University, the home is valued at $536,000. Better yet, it’s paid off. But Springmann won’t budge. “I thought if I could file for bankruptcy and shield my assets, then I would get a chance to start over,” he says. Trustee Marc Albert argues that too much of Springmann’s home is used for business, noting that Springmann runs his law practice out of the basement and rents out two of the bedrooms. Albert, a partner at the D.C. office of Stinson Morrison Hecker, claims Springmann is improperly taking advantage of the law to avoid his debts. With no case law on the books, Albert has asked Judge S. Martin Teel Jr. of the U.S. Bankruptcy Court for the District of Columbia to set limits on D.C.’s homestead exemption similar to those in other states. Albert says he wants to settle and that he doesn’t want to make Springmann a test case for the homestead exemption. But he’ll do it if necessary. “We really don’t like to see someone lose their house,” Albert says. “But this seems to be fairly egregious only because you have about $150,000 of liability and, to put it conservatively, a house that’s worth between $500,000 and $600,000.” Albert says the exemption was intended to protect the elderly from losing their sole possession, not for a middle-aged lawyer skirting credit card bills. “If he’s right and we’re wrong, then he’ll be able to get around paying anything on these liabilities,” Albert says. There’s no doubt that Springmann is stubborn. He has defied his own attorney’s advice to mortgage the house and settle the case. Springmann says he is merely asserting his rights under D.C. law and contends that the bankruptcy trustee is only looking to profit from his misfortune. “I didn’t want to get myself into a real deep hole,” Springmann says. “I wanted to get this worked out with no hassles so I could get my law firm going, but I can’t do it now. “They think I’m just sitting in a big house in University Park where everyone is rich, rich, rich,” Springmann adds. “Well, I’m not.” THREE-YEAR-OLD LAW Four years ago, the D.C. Council approved legislation overhauling the city’s trust and estates laws. Tucked into the bill was a series of new exemptions for D.C. residents in financial trouble. Bankruptcy lawyers say there’s no question the law governing exemptions needed to be updated. Prior to 2001, the D.C. law contained no exemption protecting even a portion of a person’s home. Rather, it allowed debtors to exempt “one horse or mule; one cart, wagon, or dray and harness . . . if used principally by the debtor in his trade or business.” While the new law mirrored many of the exemptions allowed under federal bankruptcy law, it added an unlimited homestead exemption, as well as an exemption governing retirement accounts. D.C. Mayor Anthony Williams signed the bill in January 2001. Congress allowed the provisions to become law in the District in April 2001. “It is somewhat ironic that during this period of time in particular, Congress was looking at tightening up bankruptcy law, but no one directed them to these types of issues,” Albert says. MONEY TROUBLES Springmann admits he’s never been too good at making money. As a State Department employee in charge of issuing travel visas in Saudi Arabia and Germany, Springmann says his salary never topped $50,000. A 1983 divorce left him with no properties and bad credit. In 1986, Springmann took over the house when his elderly aunt entered a nursing home. He paid his aunt monthly, and after she died in 1995, the estate paid off the mortgage. In 1992, Springmann says, he was fired from his State Department job after he complained about the way visas were being handed out. When he had trouble finding work, Springmann went to law school at American University with the hope that a law degree could provide him with much-needed cash. But Springmann soon found that starting a law practice in his mid-50s was much more difficult than he had anticipated. Meanwhile, he had racked up more than $100,000 in school loans. After a short stint working for a small law firm in Virginia, Springmann began running a law practice out of the basement of his home. He bills himself as a general practitioner, handling everything from driving under the influence to probate matters. On his Web site, Springmann touts his experience with immigration cases. In order to defray some of his costs, Springmann rents out two of the home’s three bedrooms, usually to American University students. According to court papers filed by the trustee, Springmann has had 36 renters in 17 years. Springmann says he currently receives nearly $1,200 a month in rent. The law business has yet to make much money. Even with the rents, Springmann says, he made just $33,000 annually over the past couple of years. “When I started to pay D.C. real estate taxes and malpractice insurance, it all disappeared,” says Springmann. Earlier this year, Springmann’s financial crisis hit a critical stage. Sallie Mae had filed suit against him for failing to make payments on his student loans. Springmann says the loan company’s lawyers were threatening to get a judgment and take his home. In April, Springmann learned about D.C.’s homestead exemption after reading an article about it in Legal Times. In the article, its author, bankruptcy lawyer Alan Eisler, explains how the District may now be “a more attractive ‘debtor’s haven’ than Florida or Texas.” Springmann contacted Eisler for more information. “We discussed the basics of my situation and whether it could be used in my case,” Springmann says. “He said, ‘Yeah.’ “ Eisler, of Bethesda, Md.’s Paley Rothman, says the two spoke, but insists that he did not give Springmann any legal advice. Feeling confident that personal bankruptcy could keep him in business, Springmann filed for Chapter 7 bankruptcy in October. According to his filing, Springmann says he is $132,953 in debt. Of that, $107,000 consists of student loans; nearly $21,000, consumer credit; and $5,000, legal fees. After claiming the D.C. homestead exemption to shield his home, Springmann said, he had no assets. TOO MUCH BUSINESS On Nov. 23, Albert, the bankruptcy trustee, filed a five-page objection to Springmann’s homestead exemption, arguing that a majority of the house was not being used as a residence. While noting that D.C. courts have yet to confront the issue, Albert said case law from other jurisdictions backs his argument. “It appears to the Trustee that the test should be: what is the intended use of the property,” Albert’s objection states. “Here, it is clear that the intended use of at least a portion of the Property is for income generating purposes and not for residential use by the Debtor.” The objection goes on to describe how on his 2003 federal tax filing, Springmann claimed that 33 percent of his home was used for his law business and that he rented out two of three bedrooms. Springmann’s lawyer, solo practitioner Harris Ammerman, filed a response to the objection, noting that courts in other jurisdictions have held that exemptions must be liberally construed in favor of the debtor. In states such as Florida and Texas, the law has been amended to set certain limitations on the homestead exemption, such as the size of the property and whether any of it is used for commercial purposes. The D.C. law contains no such limitations. Albert, one of four trustees appointed by the U.S. trustee to oversee D.C. bankruptcies, notes that he has filed objections in at least two other cases for similar reasons. Those cases settled before the judge rendered a decision. Ronald Levin, a D.C. bankruptcy lawyer not involved in the case, says he would like to see case law deciding the issue. Without it, Levin says, trustees are using the lack of clarity to litigate and force settlements. But fighting the objection can be costly. Albert has already filed motions with the court requesting that he be allowed to employ six lawyers from his firm � at $185 to $300 an hour � to work on the Springmann case. Albert also asked to hire an accounting firm. If Albert’s objection is sustained and upheld by the appellate court, then those legal fees would be billed to Springmann’s estate. Then there is the cost of paying a lawyer to fight the case on Springmann’s behalf. There is an additional financial incentive for Albert in getting the property. Under the law, Albert is paid just $75 for overseeing a bankruptcy with no assets. Albert would get a percentage of any assets he does recover from the sale of the house � 25 percent of the first $5,000; 10 percent of the next $45,000; and 5 percent of the next $950,000. Springmann accuses Albert of litigating the matter in an effort to run up the costs and to pressure Springmann into settling. Darrell Clark, Albert’s law partner and lawyer for the trustee, says they have a duty to see that creditors are paid. “We have a fiduciary duty to act in the best interests of the creditors,” Clark says. “The creditors’ best interests are to get their hands on this house.” Ammerman says Albert has already agreed to settle the matter for about $50,000 � an offer Ammerman suggested his client should take. Yet Springmann insists that settling is not an option. For one, he says, taking a loan out on the house to pay the bills while not making much money will only ensure that he loses the property. Selling the house and trying to find housing for himself and his law practice in the D.C. area would be too costly. “I’m going to get burned either way,” Springmann says. “I’d rather get burned trying to save my house.”

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