Bankruptcy Under Other State's Exemptions

I overheard one of our local Chapter 7 trustees told me that many people filing Chapter 7 pro se (without an attorney) and even some experienced bankruptcy attorneys are making big mistakes in advising recent Florida residents about their homestead exemptions. Any resident of Florida can file bankruptcy in Florida. Any resident of Florida is guaranteed unlimited protection of his homestead from creditors. But, when a Florida resident files bankruptcy in Florida the unlimited homestead protection applies in bankruptcy court only if the bankruptcy debtor has lived in his homestead (including a immediately preceding Florida homestead) for 40 months or more. If not, the homestead protection in bankruptcy court is limited to $125,000 under the new bankruptcy law.

This trustee has seen several cases where people moved to Florida from other states and purchased an expensive homestead thinking their house was sheltered from their debts incurred in their prior state of residence. When these people filed bankruptcy less than two years after moving to Florida they were surprised by this trustee, and other trustees, that their exemptions are based on their prior residence. Therefore, these Florida debtors did not benefit from Florida’s unlimited homestead protection.

I have found that except for homestead protection people recently moving from other states get more exemptions in bankruptcy court than they would get as a Florida resident. For instance, Florida’s $1,000 personal property exemption and its $1,000 car exemption is among the lowest in the country. For people without expensive homes, they are better off filing bankruptcy before they have been in Florida for two years. They will not receive the benefits of using prior state’s exemptions unless they or their attorneys are aware of this rule; unfortunately, too may people are unaware.

posted by Jonathan Alper, banrkuptcy and asset protection attorney, Orlando, Florida