florida homestead exemption act



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NOTE: We are not bankruptcy attorneys nor do we provide legal advice on the subject. We highly encourage you to seek legal advice and assistance from a well qualified bankruptcy attorney if you have questions.

One of the first bankruptcy opinions on the new law which took effect October 20, 2005 is In re McNabb (Case No. 0-05-07495-RJH, Arizona).  In interpreting the new bankruptcy law’s homestead provisions, an Arizona bankruptcy judge ruled that the $125,000 homestead limitation afforded to bankrupt debtors who acquire their property within 40 months of filing bankruptcy is not applicable in states like Arizona, or Florida due to the fact that those states have "opted out" as a matter of state law, the exemptions afforded by federal bankruptcy. Based on this court decision, it may be that a resident of Florida who files bankruptcy under the new law, regardless of when he purchases his Florida homestead, may still enjoy unlimited homestead protection under the Florida Constitution providing the claim is made. The judge stated that the new bankruptcy law regarding homestead and exemptions only affect those who file bankruptcy and who claim exempt property under the laws of their state rather than the federal law regarding bankruptcy exemptions. Since Florida law allows  bankrupt debtors in Florida to "opt out" of the federal exemptions, the court ruled that no debtor in Florida could elect state exemptions as  the election has already been made by Florida lawmakers. This decision may not be binding on Florida bankruptcy courts, but the ruling  and the decision may be able to be used to set precedent in Florida. If this ruling is adopted by Florida bankruptcy courts, it should stop most fears of debtors being forced into involuntary bankruptcy in order to remove and alienate them from Florida’s homestead protections. Read the entire synopsis and case opinion HERE.

The problem for Florida is that a Florida bankruptcy judge has ruled in direct conflict with the Arizona judge. This means that the opt-out provisions of the BR Code do not apply to Florida. Read the entire opinion HERE

The bankruptcy code acknowledges the validity of the homestead protections

Many times the subject of bankruptcy seems baffling in its complexity. It is. Actually the basic principals of bankruptcy are fairly simple even though the federal statutes on bankruptcy are extensive, and the courts have complicated the issues. The reason that the laws are so complex is because in an effort at social engineering, the politician lawmakers want to cover every possible contingency. The very complexity of the Bankruptcy Code gives the lawyers ample opportunity to try to obtain interpretation of the law which best serves their clients interest. This results in extensive litigation and occasionally in interpretations of the law which were not what the congressional legislature intended. Legislation from the bench at its finest. Nonetheless, this in turn results in additional legislation, which results in additional litigation and on and on. The bottom line is a bottomless money pit. Nevertheless, the underlying principals are not as complex as the law makes them seem. Here we will briefly discuss the personal nature of bankruptcy without rendering legal advice.

The concept of bankruptcy is an old one in the English common law. If a person could not pay his debts, his creditors hauled him into court, took all of his assets and belongings, and used those assets and belongings to satisfy their debts. If the assets were insufficient to satisfy the debts, the debtor was taken from the bankruptcy court to debtors prison. Since this is a rather extreme remedy, Article 1 Section 8 of the U.S. Constitution gives the Congress the right to establish "uniform Laws on the subject of Bankruptcies throughout the United States."

As the popularity of debtors prison declined, the original concept of giving the debtor a fresh start became one of the primary purposes of the bankruptcy process. It is important to remember that a bankruptcy is a personal action which at time of discharge gives the petitioner (formerly the debtor) a fresh start. The property owned by the petitioner does not get the fresh start, the individual does.

The fact that bankruptcy is a personal action may shed some light on the effect of a homestead protection in a bankruptcy proceeding. The bankruptcy code acknowledges the validity of homestead protection. A 'homestead exemption' is a personal exemption which, in an effort to preserve a person's home, protects a certain amount of an individual's equity in the homestead property. State law determines the extent and effect of a homestead exemption. Thus, if state law says that a person can declare a homestead up to $125,000 and if there is less than $125,000 equity in the property, that equity in the property is protected by the homestead exemption. This principal under state law operates without regard to the Federal Bankruptcy Code.

Revisions to the new Bankruptcy Code Makes It Tougher to File Bankruptcy - Effective November 2005

Bankruptcy law changed dramatically in November. A sweeping overhaul of the nation's bankruptcy laws makes it harder to avoid paying creditors and guts a long-standing Florida exemption that protects homes from being sold to pay off debts, therefore now is the time to protect your home from the possibility of future debt. Bankruptcy relief will not be available to some; will be more limited in scope; and will be more expensive. Debts that are dischargeable under the present law will survive a bankruptcy discharge under the new law.

After an eight year long battle funded by the banking and credit card industries, who contributed more than $40 million to federal election campaigns during this period, the United States Bankruptcy Code has finally been amended.  The new bill was approved by the Senate in March 2005 and by the House on April 14, 2005.  The changes to the Bankruptcy Code took effect six months after the date President Bush signed the bill. Therefore, the new bankruptcy law took effect in November 2005, but will be in full force by January 1, 2006. Florida Homestead Services can protect your property now from unforseen circumstances in the future.

Highlights of the bankruptcy bill include:

Debtors who earn more than the median income earned in their state must pass a means test in order to file Chapter 7 bankruptcy.  If the debtor earns more than the median income in his or her state, secured debt and necessities (alimony, child support, living expenses, etc.) are subtracted from the debtor's monthly income to determine what is left over for repayment of unsecured debt.  If it is determined that a debtor can pay the lesser of $10,000 over a 60 month period ($100 per month) or 25 percent of his debt, which must be at least $6,000, then he must file Chapter 13 bankruptcy and repay some or all of his unsecured debt over a five year period.  If the debtor does not pass the means test, he can file Chapter 7 just as with the old law and have much or all of his unsecured debt erased.

Debtors will be required to pay for credit counseling.  Those contemplating filing bankruptcy must obtain a briefing about credit counseling services not more than 180 days before filing bankruptcy.  The banking and credit card industries wanted this provision included to encourage those contemplating bankruptcy to sign up for credit counseling instead.  This provision applies to everyone regardless of whether or not they earn at least the median income in their state.

Although the media and certain politicians have been warning the public that the new bankruptcy code will place undue hardship on the poor and women, and be an economic disaster for the country, the American Bankruptcy Institute predicts that the new revisions will only affect 30,000 to 210,000 of the 1.5 million people who file bankruptcy each year.

Who should consider filing before the new law is effective? Those whose debts include any of the following kinds of claims:

  • Unfiled tax returns: present law allows discharge of tax liability for tax years more than 3 years prior to the bankruptcy filing, even if the returns have not been filed. The new law eliminates this provision.

  • Debts incurred by dishonesty: currently, a debtor can discharge, without challenge, debts that the creditor claims were incurred by fraud, breach of fiduciary duty, or intentional malicious acts. This provision has kept credit card companies from disputing the dischargeability of credit card debt. The Chapter 13 "super discharge" will disappear under the new law.

  • Trust fund employment taxes: current Chapter 13 discharges even priority taxes such as the liability of a corporate officer for the withholding portion of employment tax liability if the taxing authority does not file a timely claim. Under the new law, tax liabilities for which no claim is filed will survive the bankruptcy.

  • Car loans if the vehicle was purchased in the past two years and is now worth markedly less than the loan balance. The ability to strip down a car loan in Chapter 13, or redeem the car for its present value disappear under the new law on vehicles purchased within 2 1/2 years of the bankruptcy filing.

  • Debts arising from a divorce: property division obligations or indemnity provisions will be non dischargeable in Chapter 7 but remain dischargeable in Chapter 13.

State Exemptions

The new bankruptcy law impacts homestead protection only in bankruptcy court and does not affect the homestead protections that are currently available in a Florida state court collection proceeding. When the law goes into effect, you cannot use the exemptions in your state of residence unless you have lived there at least 2 years, unless you act now and claim your current lawful exemptions. Fears that once the Bankruptcy Reform Act went into effect, more and more creditors will try to force people into involuntary bankruptcy in order to strip debtors of exemptions otherwise available under Florida law. Many debtors who enjoyed unlimited homestead protection in a state court would forfeit homestead protection above $125,000 if they were forced into federal bankruptcy court by a creditor who filed in an "involuntary petition". One creditor with an undisputed and liquidated claim can file a petition for involuntary bankruptcy, however, fears of an involuntary bankruptcy epidemic under the new bankruptcy law may be exaggerated, and the new law may make it even more difficult for creditors to impose bankruptcy upon individuals.

Prior to the new Act, a debtor could threaten a creditor with bankruptcy. After the Bankruptcy Reform Act, creditors will likely threaten to force a debtor into bankruptcy so the debtor’s assets can be picked clean.  One issue overlooked by many lawyers is the common requirement that involuntary bankruptcy is far from automatic and involuntary petitions must be filed by creditors in good faith. Most courts have stated that involuntary bankruptcy may not in good faith be used as a collection hammer by an aggressive creditor, and the involuntary bankruptcy must serve a bankruptcy purpose. It must benefit creditors as a whole. Some provisions are effective immediately. One important change immediately effective is the $125,000 limit on protected homestead equity for those debtors who have owned their residence less than 40 months. Anyone with homestead equity greater than $125,000 and does not meet the 40 month waiting period and who is considering filing bankruptcy before the new bankruptcy law goes into effect should file bankruptcy immediately. 

Remember that the new bankruptcy law does not change Florida's homestead laws or asset exemptions in any state court proceedings. The changes are important only if a debtor files in federal bankruptcy court.


Currently Kansas, Texas, Florida, Iowa, and South Dakota have unlimited homestead protection exemptions. That allows people to file for bankruptcy and keep their homes and property in those states sheltered from creditors. Still, Floridians will be able to shield homes from creditors under several scenarios, even if the bankruptcy legislation is enacted, but it would be very wise to file now instead of wait until the last minute to claim your exemptions.

The new bankruptcy law partially closes a loophole popular with some wealthy debtors. It used to work like this: when you know you are going to file for bankruptcy, move to Florida, Texas, Kansas, Iowa, or South Dakota — the states that have an unlimited "homestead" protection. This means that no matter how much your house is worth, it can't be touched by creditors as long as you make the claim. When the new law takes effect in November, you have to live in the home for at least two years before you file for bankruptcy for the home to be "exempt." Why wait?

Under the new law, the tax exemption portion is limited to $125,000 if the property was acquired within the previous 1215 days (3.3 years). The cap is not applicable to any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period). So if you have owned your home more than 3.3 years before filing a bankruptcy, it is completely exempt in the states listed above. The limitation on the homestead exemption may mean that future creditors could seize every dollar above the $125,000 threshold should a debtor be forced to sell his or her home to pay the creditor. 

Homestead protection allowed by the State of Florida may not apply if you file for bankruptcy. The new federal bankruptcy law will have absolutely no effect on Florida's homestead protection outside of bankruptcy court. In Florida forced sales are against the Constitution but the homestead claim must be legally filed! 

This is where Florida Homestead Services can help you. Don't wait!

For example, Floridians who have owned their homes for 40 months or longer will be able to keep their unlimited homestead exemption if they have filed and made the proper claim. Homestead exemption for ad valorem property tax purposes does not automatically protect your home from creditors, liens, judgments or bankruptcy. Floridians who file for bankruptcy and homestead exemption for asset protection before the President signs the legislation will be able to keep the unlimited exemption. And married couples -- in cases where only one partner is bankrupt -- will be able to shield their home under a different exemption. Florida's future homebuyers, however, will lose the homestead's unlimited protection in bankruptcy cases unless they claim the exemption now.

Homestead Protection – The New 3 Year Four Month Rule

Another notable feature of the Senate Bankruptcy Bill involves the homestead protection available in many states. Florida, Texas, and Iowa, for example, protect unlimited amounts of homestead value. Homestead would still be protected to the extent of existing state law if it has been owned and lived in for at least 3 years and 4 months.

It is important to note that state law homestead protection will still apply so long as the debtor does not declare bankruptcy. The Bill has no negative impact on a situation where a debtor has lived in their home for 3 years and 4 months, even if the debtor recently paid down significant portions of the mortgage.

Where the home was purchased within 3 years and 4 months of filing bankruptcy, and was purchased with the proceeds of the sale of another home that was owned at the 3 year-4 month point, then the new home is still protected to the extent of the value derived from the proceeds of the sale of the old home.

Even if the home qualifies for protection under the 3 year-4 month rule, debtors who are convicted of "any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years" as part of their judgment would not have the home protected if they file a bankruptcy. The new bankruptcy law allows creditors to be able to use involuntary bankruptcy to eliminate homestead protections from people who live in Florida or buy expensive homes there to protect themselves from creditors. A debtor forced into bankruptcy may be able to save his homestead if his case is converted to Chapter 13 by virtue of “the means test”. The means test apparently applies only to voluntary Chapter 7 bankruptcy actions. Therefore, a 'means test' may not thwart  creditors from using involuntary petitions to force a Chapter 7 liquidation of homestead properties.

Tenants By The Entireties

Many states, such as Florida, exempt real property owned by husband and wife as tenants by entireties from creditor claims where only one spouse is a debtor. In those states, a married couple's house will still be absolutely protected from the creditors of one spouse if it is held as tenants by entireties between husband and wife. For example, if a multi-million dollar judgment is placed against a husband who owns a home as a tenant by the entirety with his wife, then upon filing bankruptcy, there will be no limitation on protection of the home because of the tenancy by the entireties rules.

Tenancy by entireties is a common law rule of property ownership, and bankruptcy law has traditionally deferred to state property law.

Many homeowners will continue to have their spouses own most or all of the family investment assets, particularly where tenancy by the entireties protection is not available.

Income level

The "means test" imposed by the new law attempts to make all families with incomes over the median state income for a household of its size file Chapter 13. So anyone with an income above that level should consider filing before October. A real oddity in the law is that one's income is presumed to be the average of your income for the last 6 months. So, that income figure for purposes of the law may have no real relationship to the actual monthly income at filing.

TEST # 1:
Is the family earning above the average income for their state?

  • 1997 US average for a family of one = $18,762;

  • 1997 US average for a family of two = $39,343;

  • 1997 US average for a family of three = $47,115;

  • 1997 US average for a family of four = $53,165.

If the answer is "No" Chapter 7 can be filed!

TEST # 2:
If the answer is "Yes" to TEST # 1 , do you have excess monthly income of more than $166.66/month to pay $10,000 of debt over 5 years?

If the answer is "No" you must answer another question, if "Yes" Chapter 7 cannot be filed but Chapter 13 may be filed!

TEST # 3:
If the answer is "No" to TEST # 2 do you have excess income of greater than $100/month to pay over the next 60 months at least 25% of your unsecured debt?

If the answer is "No" you can file Chapter 7, if "Yes" chapter 7 cannot be filed but Chapter 13 may be filed!

Determination of How Much Money Debtors are "Able" to Put Towards Their Credit Card Debts

One of the means tests listed above involves how much a debtor can afford to pay towards credit cards. How do you calculate this? The formula is simple:

Income - Living Expenses = Money to be Applied Towards Debts

Unfortunately, though the main formula is simple, how you calculate income and living expenses are highly complicated.

Proving Income

Debtors filing Chapter 7 or Chapter 13 bankruptcy, must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due. Big problems with this - As you may not be aware, bankruptcy records are public. Do you want your tax returns (part of your bankruptcy records) public?? With identity theft rampant, your name, address and SSN will be front and center to all ID thieves. What if all of the sudden you lose your job or have a big drastic cut in pay? Your last year's tax returns may not reflect your true earnings.

The IRS Gets to Decide What Reasonable Living Expenses Are

Under the old law, the debtor stated what he though was reasonable and the Trustee would object to anything that seemed unnecessary or extravagant - then the Court would decide what was fair. Under the new law, we will all be told what living expenses are reasonable using IRS guidelines of what the IRS thinks is reasonable.

And what about savings? Teaching people to be responsible with their money involves saving for the future. The lack of such savings may have put some of these people in the situation which forces them to file bankruptcy. Does the IRS rulebook allow people to set money aside for a rainy day?

Large credit card debts

Currently, credit card companies, especially the sub prime lenders and American Express, are prone to contesting the dischargeability of credit card debts in Chapter 7 when there are charges in the 3-6 months before the filing or where the balance is particularly large, perhaps in excess of $15,000 to $20,000. Often, if the nondischargeability case were actually tried to a judge, the debtor would prevail. The cost of such a trial however motivates debtors with valid defenses to settle or to opt for Chapter 13, where almost all debts are dischargeable.

Under the new law, debts non dischargeable because of fraud will survive a Chapter 13 discharge. Thus, individuals who suspect that they might face a creditor challenge to dischargeability would be well advised to file before the new law becomes effective. Also, a debtor whose debts are primarily business debts may be exempt from the 'means test'.

Cost of bankruptcy

The new law is riddled with formulas, calculations, limitations, and economic fictions. Attorneys fees for cases filed after October inevitably will increase, probably substantially, to fund the legal work necessitated by the changes. Repayment period of Chapter 13 will be almost twice as long. For those pushed to Chapter 13 bankruptcies, the repayment period is 5 years instead of 3 years.


If there is security put in place within 3 years on your vehicle, you must pay the full amount owed or lose the vehicle. Current bankruptcy laws allow you to get the loan stripped down to the value of the vehicle and you make payments at that rate.

What does this mean to the consumer? Let's say you had poor credit and could only afford to buy a car from that shady used car dealership that sells cars to people with bad credit. Typically, the interest on these cars are over 20%, which can make a loan for $2000 car $16,000 if you added up all the payments made for the life of the loan. Under the new laws, the consumer would be required to pay the entire $16,000 back, or lose the car. The old laws reduced the amount of the loan to what the car was worth, and payments would continue from that point.


You must have finished counseling within the last 6 months before you can file. Critics say this requirement, in addition to adding costs, ignores Senate investigations that suggest the counseling industry is rife with excessive fees, pressure tactics and poor service. Moreover, no approved list of counselors exists. The legislation charges the U.S. Trustees office with creating such a list. And if you've known me at all, you know how much I'm horrified at the non-profit credit counseling industry.

The only people who could be debtors are those individuals who attend a debt management course from an approved provider. Debtors who want to avoid involuntary bankruptcy should not take the approved course thereby disqualifying them from either voluntary or involuntary bankruptcy. The proposed changes in the official bankruptcy rules to adapt to the new bankruptcy law have been submitted. The proposed rules state that following an order approving a petition for involuntary bankruptcy the involuntary debtor must file a certificate of attendance at a debt management course. The rules state that a debtor can be ordered by the court to attend debt management after he is adjudicated bankrupt as a result of an involuntary petition. A voluntary debtor who does not attend is subject to dismissal of his case. The rules do not specify penalties for failure to attend debt management courses as a result of an involuntary bankruptcy petition.

The courts may or may not find that the debt management education requirement of the new law is a ‘monkey wrench’ in regards to involuntary petitions. It appears that the proposed new bankruptcy rules hold that mandatory debt management courses are consistent with involuntary bankruptcy petitions. 

Child Support and Alimony

These debts would go from a priority of 7th to 1st. Bankruptcy Lawyers are held accountable for supplying accurate information. Under the new law, if information about a client's case is found to be inaccurate, the bankruptcy attorney may be subject to various fees and fines. What this means is that the lawyer can be fined if his client has supplied the him with false information that the lawyer, having no reason to think the information is incorrect, forwards to the court. This doesn't cover information supplied by a lawyer which he knows is false, obviously wrong and fines should be levied in such cases. But this isn't what the law says. The law can be interpreted to say a lawyer can be found liable if his client lies to him.


Up to 15% of your income can be given to charity. This is seen by some as a loophole allowing people who may be just over the thresh hold of having to file Chapter 13 to drop down low enough to file Chapter 7.

Asset Protection Trusts

The new law leaves intact an increasingly popular loophole called asset protection trusts. These trusts allow people to protect substantial assets from creditors even after filing for bankruptcy. Setting up these trusts can cost many thousands of dollars. Maintaining them and paying an in-state trustee can cost thousands more. That usually rules these trusts out for people of modest means, making them an option mainly for the wealthy, but this is not always true.

Until 1977, these trusts could only be opened offshore. But since then, eight U.S. states -- Alaska, Delaware, Utah, Nevada, Rhode Island, Oklahoma, South Dakota and Missouri -- have passed laws exempting assets held in the United States from federal bankruptcy laws. People opening one of these trusts don't have to be a resident of the state, but merely establish the trust through a financial institution located there.

Reduction of Homestead Exemption under New Code §522(o) and the Conversion of Nonexempt into Exempt Property

In re Maronde, 332 B.R. 593 (Bankr. D. Minn. 2005), (N. Dreher), is a recent decision that interprets and discusses new §522(o) of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The debtor, Kim Morande, a resident of Minnesota, on the eve of filing a chapter 13 bankruptcy, and while insolvent, planned to take cash advances on credit cards and then apply those funds to reduce his equity line of credit against his homestead, and thereby increase his exempt homestead. He planned to then sell a nonexempt truck and trailer to raise cash to offer his new creditors settlements at less than what he owed. Next, he took cash advances of $31,500 and used the money to pay down his equity line of credit, thereby increasing his exempt homestead property by that amount. He then attempted to take an additional $22,300 in credit card advances to further reduce his home mortgage debt, but those advances were denied. When the last-mentioned attempt failed, Mr. Morande sold his truck and trailer and applied $18,750 of the proceeds to further reduce his home mortgage lien (to zero). He then filed a chapter 13 bankruptcy petition.

Mr. Maronde unfortunately filed his petition on April 20, 2005, the day the president signed the BAPCPA.  Therefore, his case was subject to 11 U.S.C. §522(o), which became effective on that day.  However, at that time he was still able to seek an eventual discharge of the unpaid balances of his credit card debts obtained by fraud, since the addition of that exception to discharge under chapter 13 did not become effective until Oct. 17, 2005.

The Minnesota homestead exemption is limited to $200,000. The debtor claimed home equity of $69,572 as exempt homestead property and proposed a plan that would pay general unsecured creditors $13,678, less than half of what he owed them. The trustee objected to the debtor’s claim of homestead exemption based on §522(o), and also objected to confirmation of the debtor’s chapter 13 plan.

Section 522(o) provides that “the value of an interest in...property” the debtor “claims as a homestead” shall be reduced to the extent that “such value is attributable to” any property the debtor “disposed of” in the 10-year period ending on the date of the filing of the petition “with the intent to hinder, delay or defraud a creditor and that the debtor could not exempt...if on such date the debtor had held the property so disposed of.”

The court stated that the issue is “whether the debtor acted with intent to hinder, delay or defraud a creditor when he sold his truck and trailer and used the proceeds to increase the equity in his homestead by $18,750.” The court held that the debtor acted with the requisite intent, and sustained the trustee’s objections.  In explaining its decision, The court stated that the words, “intent to hinder, delay or defraud a creditor” contained in §522(o) should be interpreted the same as in the fraudulent conveyance provisions [§548] and the denial of discharge provisions [§727(a)(2)] of the Code, as developed in the body of case law construing those sections.  This intent may be inferred from the presence of several or more “badges of fraud.”  There is no need to prove all of them and there is no weighing system applicable.  The court then itemized 11 badges of fraud.

The court stated that in this case, the inference of intent to hinder, delay and defraud creditors is “inescapable” because (1) the debtor essentially transferred property to himself (2) at a time when he was insolvent and (3) the transfers constituted substantially all his nonexempt assets. The court acknowledged that debtors are permitted to convert nonexempt assets into exempt assets on the eve of bankruptcy, but indicated that the conversion must not be done with intent to defraud creditors, citing In re Holt, 894 F.2d 1005, 1008 (8th Cir. 1990).  The court stated that although the conversion of the debtor’s truck and trailer into exempt homestead property, in and of itself, might not have been objectionable, it became objectionable in this case because it was “part and parcel” of his original scheme to defraud creditors, to wit: to take cash advances on credit cards and apply the funds to increase exempt equity in debtor’s homestead, to liquidate the truck and trailer to raise cash to offer to creditors to settle for less than he owed, and not to make an honest attempt to pay creditors in full.  The fact that this original scheme did not work does not erase the original intent of the scheme.

Since the debtor’s conversion of vehicles into homestead property was done with intent to hinder, delay and defraud his creditors to the extent of $18,750, the debtor’s homestead exemption was therefore denied to that extent, and the trustee’s objection to claim of homestead exemption sustained.  Having denied the claim of the homestead exemption, the debtor’s plan did not satisfy the best-interests-of-creditors test and confirmation was denied.  This opinion raises some interesting questions.

The court’s comment that the debtor “transferred assets to himself” was in the context of finding the existence of a badge of fraud; however, neither a transfer of property to oneself nor a conversion of property is listed among the 11 badges of fraud mentioned in the opinion (or anywhere else, for that matter).  So is a transfer of assets to oneself, or a conversion of nonexempt property into exempt property, a new badge of fraud?  Can a person actually transfer property to himself?  Could the transferor, who ends up owning the equivalent of the property transferred and who has therefore not altered his financial position, be said to have “disposed” of assets?

What is the requisite intent of §522(o)?  There is only one reason to convert nonexempt property into exempt property on the eve of bankruptcy – to place it beyond the reach of creditors and enable the debtor to keep it.  Placing property beyond the reach of creditors hinders and delays their collection efforts.  Yet, as The court indicated, conversion is permitted.  Therefore, an intent to hinder and delay creditors, which necessarily accompanies such a conversion, cannot be a forbidden motive.  In fact, since conversion is legal and in the debtor’s best interests, it arguably ought to be the intent of a competent bankruptcy attorney preparing a client to file bankruptcy.  So what is the forbidden motive?  Is it fraud?  Deception is universally regarded as an element of fraud. However, no deception is involved in the conversion of assets, and the conversion therefore could not have defrauded creditors.  If there was no fraudulent intent involved in the conversion, does the conversion itself actually qualify as a ground for objection to the debtor’s homestead exemption under §522(o)?

Speaking of fraud, the debtor in this case clearly defrauded unsecured creditors by taking cash advances of $31,500 and using the funds to pay down his home mortgage debt, thus increasing his exempt homestead property by $31,500.  According to the opinion, this was actual fraud (perhaps criminal, as well as tortious).  Why then did these transactions not result in a reduction of the debtor’s allowed homestead exemption?  If converting nonexempt vehicles and trailers into exempt homestead property qualifies under §522(o), why would converting nonexempt cash, obtained by fraud, into exempt homestead property not qualify?

How should debtor’s counsel advise his or her client insofar as pre-bankruptcy planning is concerned?  Should counsel advise clients that they should not convert nonexempt assets into exempt assets?  Not according to this case.  In view of the Maronde rationale, perhaps good advice would be that although conversion of nonexempt property into exempt homestead property is permitted, the exemption may be denied or reduced if the debtor has engaged in other fraudulent activity in anticipation of the bankruptcy because, under those circumstances, The court may conclude that the conversion was tainted by an overall scheme to defraud creditors.

2005 Bankruptcy Reform: What the Courts Have Done So Far

The recent amendments to the Bankruptcy Code via the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) have provided a number of significant changes to the Code. This part examines how the courts have been implementing the changes in the law.

The Lack of Clarity in Many Provisions of BAPCPA

Many bankruptcy judges were initially critical of BAPCPA primarily because they believed Congress had not appeared interested in input from their contemporaries regarding bankruptcy reform. Moreover, many provisions of BAPCPA reduced the discretion of bankruptcy judges. Now that BAPCPA has gone into effect, judges have been getting down to the task of actually applying the law. The problem, of course, is that numerous provisions of BAPCPA are written in such a way as to invite different interpretations. Many provisions of BAPCPA are confusing to say the least. In one of the first cases interpreting BAPCPA, Chief Judge Robert A. Mark in the Southern District of Florida observed:

    After reading the several hundred pages of text in the [new law], one conclusion is inescapable. BAPCPA is not a model of clarity. In re Kaplan, 331 B.R. 483, 484 (Bankr. S.D. Fla. Oct. 6, 2005).

As a result of Congress’ lack of clarity, courts likely will come to different interpretations of various sections of BAPCPA. Two recent cases illustrate this point.

The New Limitation on the Homestead Exemption

As previously mentioned herein, while most of the changes to the Code affect cases filed on and after Oct. 17, 2005, certain changes actually became effective for cases filed after the President signed BAPCPA in to law on April 20, 2005. One of the changes effective on April 20 related to the $125,000 cap on the homestead exemption contained in new §§522(o), 522(p) and 522(q). Two of the first published opinions involving BAPCPA looked at the sections related to the homestead cap, but came to completely opposite conclusions. The issue is whether the new $125,000 homestead equity cap is applicable in states that prohibit a debtor from electing federal exemptions (in other words, where a state has “opted out” of the federal exemptions, a debtor does not have the right to make this election, and must choose the exemptions allowed in the state where the case is filed).

The that first case examining the homestead issue, In re McNabb, 326 BR 785 (Bankr. D. Ariz. 2005) Judge Randolph J. Haines found the language of §§522(b) and 522(p) related to the homestead cap clear and unambiguous. As a result of what he deemed the clear and unambiguous language of the statute, Judge Haines found he could not look to the legislative history or the “intent of Congress” to interpret the language in the statute. While he noted the result might seem curious, the court found it was bound by the “clear and unambiguous” language of the statute. The court held that the $125,000 cap on the homestead exemption was not applicable in Arizona, and as a practical matter would be applicable in only two states.

Judge Mark of Florida looked at the same sections of the statute and came to the opposite conclusion in In re Kaplan, 331 B.R. 483 (Bankr. S.D. Fla. 2005). Judge Mark rejected Judge Haines’ strict analysis of the statute in In re McNabb, finding that the language in the statute contained sufficient ambiguity to allow him to examine the intent of Congress. Judge Mark then noted that there was no doubt that Congress intended BAPCPA to address the abuses related to the so-called “mansion loophole,” where debtors would move to states with an unlimited homestead exemption, such as Florida, purchase a large house, and then file bankruptcy and keep their house. Based on the ambiguity in the statute and after looking at the clear intent of Congress, Judge Mark held that the homestead exemption limitations imposed by BAPCPA applied to most states, including Florida:

    Looking to the legislative history of the Reform Act, there is no doubt about what Congress intended. Contrary to the assertion in McNabb that the legislative history “is virtually useless as an aid to understanding the language and intent,” the Reform Act is replete with references demonstrating that the new homestead limitations in §522(p) and (q) were intended to apply to all states in which debtors could previously exempt amounts in excess of $125,000.

Judge Mark’s analysis was adopted by another Florida bankruptcy court, In re Wayrynen, 332 B.R. 479 (Bankr. S.D. Fla. 2005) (J. Friedman) and followed by a court in Nevada. In re Virissimo, 332 B.R. 201 (Bankr. D. Nev. 2005) (J. Riegle).

Attorneys May Not Be a Debt-Relief Agency

BAPCPA appears to impose significant new obligations on attorneys representing debtors. These obligations are imposed on any entity defined as a “debt-relief agency," which includes anyone who provides “bankruptcy assistance” to an “assisted person." The conventional wisdom has been that a debt-relief agency includes any attorney representing a debtor. On the first day BAPCPA became effective, however, one judge rejected this conventional view.

On Oct. 17, 2005, Judge Lamar W. Davis Jr., Chief Bankruptcy Judge for the Southern District of Georgia, entered an order declaring that attorneys are not debt-relief agencies under new Code §§101(12A), 526, 527 and 528. See 332 B.R. 66 (Bankr. S.D. Ga. 2005). Interestingly, the court’s order was not entered in a case, but stated it would apply to all cases in Davis' court. Among other reasons, Judge Davis observed that “it is hard to imagine that the language which...conspicuously omits the word ‘attorney’ really requires an attorney to tell an assisted person that he/she has the right to hire an attorney....” This order is now on appeal. Judge Davis’ order has been criticized by those who point out that, among other things, “bankruptcy assistance” by a debt-relief agency includes “providing legal representation,” which certainly should include attorneys. Nevertheless, Judge Davis’ order points out that the courts will play a large role in how BAPCPA is interpreted and implemented.

Debtors Are Not Complying with the BAPCPA Requirements

While much of the information is anecdotal, in the few bankruptcy cases that have been filed since Oct. 17, 2005, it appears that debtors have failed to follow many of the BAPCPA requirements. For example, debtors have failed to include the calculation of the means test, or file a certificate of completing the required pre-petition credit counseling. Many of the cases filed since Oct. 17 have been dismissed by the courts as a result of these filing deficiencies. In the Tampa Division of the Middle District of Florida, for example, 89 of the 200 cases filed since Oct. 17 were dismissed. The majority of these cases were filed by pro se debtors, who many people speculated would be most likely to not follow the BAPCPA requirements. Of course, a case dismissal now has more significant consequences for a debtor who later re-files bankruptcy. In that event, the automatic stay may either be limited to 30 days (in the event there was one prior pending case dismissed within one year) or may never go into effect at all (in the event two prior cases were dismissed that were pending in the prior year).

Interestingly, the early published cases under BAPCPA have shown that courts will not rewrite the statute in order to give the debtor a “break” contrary to the law. For example, in In re Gee, 332 B.R. 602 (Bankr. W.D. Mo. 2005), a case involving the new credit counseling requirement, the debtor failed to obtain credit counseling prior to filing bankruptcy. The debtor moved the court to extend the time to obtain the credit counseling certificate. Judge Dennis R. Dow found that the debtor had failed to follow the specific requirements of BAPCPA in requesting an extension of time, and dismissed the case:

    Debtor requests that under the circumstance of this case, and because of the need for an immediate filing, the court waive the requirements contained in paragraphs (1) through (3) of §109(h), including the requirement of 109(h)(3)(A)(ii). The statute grants the court the authority to postpone the credit counseling requirement, but only if each of the stated conditions is satisfied. Debtor is essentially asking the court to ignore one of the plainly stated requirements for granting such a waiver. However, the court cannot rewrite the statute and declines the debtor’s invitation to do so.

Judge Dow’s reasoning position was followed in In re Davenport, 2005 W.L. 3292700 (Bankr. M.D. Fla. Dec. 6, 2005) (J. May) (similar post-Oct. 17 cases cited in footnote 2).

In a case involving a debtor’s request to extend the automatic stay, which had expired based on the debtor’s prior case dismissal, the court would not extend the stay without sufficient evidence and compliance with the statute. Judge Isgur found that the court “is obliged to implement Congress’ intent. Taken in context, Congress intended to direct the court to conduct an early triage of re-filed cases. Debtors whose cases are doomed to fail should not get the benefit to an extended automatic stay.” In re Charles, 332 B.R. 538 (Bankr. S.D. Tex. 2005).

Is Anything Really Going to Be Different?

The McNabb and Kaplan decisions illustrate how two judges can look at the same section of BAPCPA and come up with completely different interpretations. Bankruptcy judges will struggle to harmonize the language of the statute with the intent of Congress. As Judge Mark mused in Kaplan, “implementing the changes will present a daunting challenge to judges, clerk's offices, attorneys and the parties who seek relief in the bankruptcy court after Oct. 17, 2005....”

It is too soon to tell whether the practice and results in consumer bankruptcy cases will change significantly in light of BAPCPA. Many had speculated there would be minimal real changes in practice, or at best, the changes made by BAPCPA would be followed as an exception rather than the rule. The first published cases under BAPCPA discussed above, however, indicate that bankruptcy judges are ready to view the statute narrowly and follow the pro-creditor congressional intent expressed throughout BAPCPA – even where the court may feel that the intent of Congress is flawed or misguided.


We at Florida Homestead Services think this is the most despicable bill to pass in Congress in a long while. It just shows that in today's politics, money rules the show. Congress, the lawyers in Washington, have sold out the American citizen for the love of power and money. The credit card industry has spent untold millions of dollars passed down to credit card holders in lobbying fees and donations to Congressional "re-election" funds for almost ten years to ensure the legislation would pass. The net result? We have the finest lawyer led Congress your hard earned money and credit can buy. State law should prevail though in regards to the homestead asset protection exemption if you know how to protect yourself and your property. The answer? Simply, do not file bankruptcy. There are many issues pertaining to involuntary bankruptcy which will have to clarified through judicial decisions that will only come with time. Of course, the courts will not rule in favor of 'Joe Citizen', we can almost guarantee that.

It should also be noted that the new bankruptcy laws also leave in important loophole which benefit only the wealthy...the homestead provisions and the Asset Trusts. In February, 92 bankruptcy and commercial law professors, saying they represented all major political parties, wrote the Senate to decry the current legislation as deeply flawed. They predicted that it would harm small businesses, the elderly and families with children.

"The bankruptcy filing rate is the symptom. It is not the disease," wrote the professors. While some people do abuse bankruptcy, they argued that the bigger problem has been the way credit is marketed to consumers extending debt, notably credit cards, "to riskier and riskier borrowers" with the predictable consequence that more consumers are going belly-up. Read more here...You can also read a great manuscript regarding homestead and bankruptcy by Florida Supreme Court Justice Overton here.

If you have been planning to file bankruptcy and you earn a respectable living, you had until late October 2005 to do so under the new law. The best thing in our opinion is to NOT file federal bankruptcy and allow the state laws to protect your assets. Please, protect your home and property today! Don't wait until the last minute. Our experienced staff and attorneys at Florida Homestead Services can help you protect the equity in your home, and your home. 

October 13, 2006 -- Lawyers: Bankruptcy Reform A Failure

Nearly a year into the federal government’s overhaul of the nation’s bankruptcy laws, attorneys say the changes have done more harm than good. In a survey of 700 members of the National Association of Consumer Bankruptcy Attorneys (NACBA), respondents state that bankruptcy filings have increased since the law was adopted.

More than two thirds, 68.5%, say their bankruptcy filings were up in the third quarter compared to the first half of the year. More than half of the attorneys, 57.5%, expect filings to reach their pre-reform levels by the time the one-year anniversary of the measure arrived October 17. Attorneys indicated that the bankruptcy law changes have made it harder for consumers by increasing expenses and paperwork involved with bankruptcy filings.

More than three quarters of bankruptcy attorneys say the time involved in preparing a bankruptcy filing has gone up by 50% or more. An overwhelming majority of respondents, 92.8%, say that bankruptcy reform has mostly increased costs, compared to 0.7% who say it has mostly improved results.

Among the other survey findings:
    • Less than a third of bankruptcy attorneys are seeing an increase in forced Chapter 13 repayment filings, which is contrary to what proponents of the changes projected.
    • More than 60% of bankruptcy attorneys report a jump in consumer inquiries about bankruptcy.
    • Attorneys indicate that the “vast majority” of bankruptcy cases involve unforeseen expenses rather than wasteful spending. Among the most common causes of bankruptcy filings, they say, are medical expenses, unemployment, home-related debt and increased credit card interest rates.

“In practice, the new bankruptcy law changes have proven to be a nearly total bust in terms of what the proponents of the changes forecast,” says NACBA Officer Ike Shulman, a bankruptcy attorney in San Jose, Calif. “The only good news here is that the law is so flawed and has been interpreted in such a way that some of the dire consequences many of us feared fortunately have not come to pass.”

Read more about how bankruptcy affects homestead exemption HERE



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