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What Florida’s Homestead Exemption Means For You in Bankruptcy

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The State of Florida is one of the few states in the country to have what is called a homestead exemption embedded in its state constitution. You may have heard of this exemption, but may not have understood exactly what it means for you. The homestead exemption has implications for Florida homeowners with regard to the property taxes they pay, as well as their ability to protect their home from creditors in a variety of circumstances. This article focuses on the ability of a Florida homeowner to utilize the homestead exemption to protect his or her home in a bankruptcy.

The bankruptcy law that applies to personal bankruptcy in the United States is a combination of federal and state law. Federal law is the source of the bankruptcy code that provides the general framework for personal bankruptcy, specifically through Chapter 7 and Chapter 13 of the United States Bankruptcy Code. In a Chapter 7 bankruptcy, a liquidator could potentially sell a debtor’s “non-exempt” assets to pay off creditors, while the debtor will get to keep “exempt” assets even after declaring bankruptcy. The concept of exempt and non-exempt assets also plays a part in a Chapter 13 bankruptcy, where a debtor works with the court to reorganize debts, as the court will look to non-exempt assets in addition to income in determining what a debtor should have to pay creditors under the reorganized debt repayment plan.

What is and is not an exempt asset for the purposes of Chapter 7 and Chapter 13 bankruptcies is determined by state law. Florida provides one of the more consumer-friendly sets of state laws regarding what a debtor can claim as an exempt asset, which is therefore protected from debtors in bankruptcy. They include (but are not limited to):

  • Wages of up to $750 a week
  • Certain pensions, including municipal pensions
  • IRAs up to certain levels
  • Personal property up to $1,000
  • Assets in health savings accounts and tuition savings programs
  • Motor vehicle equity up to $1,000

The most significant exemption that Florida offers, however, is the homestead exemption. The Florida State Constitution allows for a debtor to claim the entire value of their primary residence as being an exempt asset in bankruptcy, and there is no limit on the value in the home that can be exempted. What this means is that, if a homeowner owns a primary home in Florida worth $1 million and enters into bankruptcy, the entire $1 million value will be considered exempt and therefore protected from creditors. One limitation to the rule, however, is that the amount of land subject to the exemption, if located within a municipality, is only half of an acre. Therefore, if a homestead is larger than that, a judge may order a portion of the property to be sold, or if this is not feasible, order the entire property to be sold and allow the borrower to claim the equivalent of the value of half an acre of the property as an exempted asset. A person wishing to claim the homestead exemption must also have lived in Florida for two years prior to filing for bankruptcy in order to obtain the exemption.

For guidance in entering into a Chapter 7 or Chapter 13 bankruptcy in Florida, contact the Law Office of Verna Popo, P.A. for a free consultation.

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