An Alternative Attack On Florida Homestead

Most people think the main impact of the new bankruptcy law upon Florida homestead protection is the $125,000 limitation on the exemption for debtors who acquired equity in their home within 40 months of filing bankruptcy. I am involved in a case where another feature of the new bankruptcy law is being used to attack the debtor’s homestead exemption. A new Section 522(q)(1) of the Code provides that a debtor may not exempt more than $125,000 of homestead equity regardless of when he acquired the homestead if the debtors owes a debt on account of a criminal act, an intentional tort, reckless misconduct or a civil remedy under RICO laws. Civil fraud, often alleged in civil complaints, falls within the category of intentional tort.

If a creditor files a claim which alleges a debt arising out of the these above categories the debtor would have to object to the claim and defend the allegation in a separate bankruptcy adversary proceeding in order to protect homestead equity above $125,000. If the debtor owned a homestead jointly with a spouse the protected equity would probably rise to $250,000. Creditors could gain leverage against bankruptcy debtors by basing claims on the wrongs listed in Section 522(q)(1).

posted by Jonathan Alper, asset protecton and bankruptcy attorney, Orlando, Florida