Which Homestead Exemption Applies to Filing Prior to October, 2005?

Bankruptcy cases involving debtors who file bankruptcy after recently moving to Florida involve interesting issues. I discussed with another bankruptcy attorney this week a debtor who filed bankruptcy in September, 2005, one month before most provisions of the new law went into effect. He invested about $70,000 in a Florida homestead one year prior to filing and about the same time he had moved to Florida from a state with a small homestead exemption of $25,000. The homestead provisions of the new bankruptcy Act which limit Florida debtors to no more than a $125,000 if they purchased their homestead within 40 months of filing went into effect in April, 2005, when the Act was passed. A trustee argued that since he purchased the homestead after April, 2005, all homestead issues are under the new bankruptcy law. One part of the new bankruptcy law says that if you move to Florida within two years of filing bankruptcy in Florida, your exemptions are determined under the laws of the state you came from. The Trustee concludes that as to this debtor’s homestead, his exemption is limited to the $25,000 applicable in the state of his previous residence.

I think the trustee argument confuses the effective dates of difference provisions of the bankruptcy Code. The new bankruptcy law become effective on October 17, 2005 with certain exceptions spelled out in Section 1501(b)(2) of the Act. One of the exceptions was the $125,000 homestead limit. However, the Code section that applies exemptions of a prior state residence to debtors who moved to Florida more than 180 days prior to filing is part of a different section of the Act, and that different section was not one of the sections which became effective in April, 2005. As this person filed bankruptcy prior to October, 2005, and more than 180 days after moving to Florida, his bankruptcy was under the Florida homestead exemption which after April, 2005, gave this debtor a $125,000 exemption. Therefore, I believe, the debtor’s investment of about $70,000 in his new Florida homestead should be exempt. We’ll see.