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Florida Bankruptcy Court Allows Debtor To Add Homestead Exemption After Bankruptcy Filing

Florida's homestead exemption law is one of the most generous in the country as it allows homeowners to claim an unlimited amount once the exemption applies. Perhaps not surprisingly, this law has also been the subject of criticism for its propensity to invite fraud. Under this law, Florida homeowners may exempt an unlimited amount of value in their home or other property covered by the exemption as long as the property is not be larger than half an acre in a municipality or 160 acres elsewhere.

The Florida homestead exemption applies to real or personal property, and must be a personal residence, such as a home, condominium, mobile or modular home. Also, the spouse or children of a deceased owner may claim the exemption. To claim the full value of the Florida homestead exemption, you must have bought and owned the property for at least 1,215 days (three years and four months) prior to the filing of the bankruptcy case. If this requirement cannot be met, the homestead exemption is limited by federal law.

In a Chapter 7 bankruptcy case, In re Cole, Case No. 15-7459 (Bankr. M.D. Fla. Sept. 19, 2016), a Florida bankruptcy court allowed a homestead exemption, even though the debtor claimed the exemption two weeks after her case filing. In Cole, the debtor filed her bankruptcy petition while living with her mother in a home held in the name of a living trust created by the debtor's mother. The trust established the debtor and her two siblings as trust beneficiaries.

Two weeks after the daughter's bankruptcy filing, the mother passed away, which resulted in the daughter amending her bankruptcy schedules to list her one-third interest in the house as exempt under Florida's homestead law. The Chapter 7 trustee objected to the exemption, arguing that the trustee’s hypothetical lien attached first to the mother's home as it was not claimed as the debtor’s homestead on the filing date of the bankruptcy case.

However, Middle District of Florida Bankruptcy Judge Williamson allowed the homestead exemption in an opinion rendered on September 19th. Judge Williamson first noted that the Florida Constitution provides that a homestead exemption inures to the benefit of the owner’s heirs. However, under this analysis, the home was only protected from claims of the mother’s creditors, not from liens against her daughter.

Judge Williamson's opinion then goes on to state that because the mother owned the home at the time that the trustee’s hypothetical lien attached to the home on the date of the bankruptcy filing, there was nothing for the trustee's lien to attach. Accordingly, the trustee’s lien attached at the exact moment when the debtor received her one-third ownership interest in the home. Further and more importantly, he said that in this situation, the debtor prevails.

The court based its decision on Milton v. Milton, 68 So. 718, 63 Fla. 533 (1912), where the Florida Supreme Court held that an heir could assert the homestead exemption to avoid a judgment lien entered against him before his mother’s death. The homestead exemption was upheld because the heir occupied the house within a reasonable time after the death of his mother. Milton was considered by the bankruptcy court to be relevant because the judgment lien was equivalent to a trustee’s hypothetical judicial lien. In March of 2016, a Minnesota Bankruptcy Court held that a debtor could claim a homestead exemption in a house inherited within 180 days of bankruptcy.

At Loan Lawyers, our South Florida consumer rights and debt defense attorneys help individuals get control over their problems with debt. If you are a consumer with no short-term solution to solving problems from unpaid debts, contact our office today by calling (888) FIGHT-13 (344-4813) and see how we can help.