Moving Into Florida House Just Prior To Bankruptcy: Does It Work?

A prospective bankruptcy debtor purchased a single family house in Florida for investment several years ago. At time of purchase the investor lived up north. In 2005 he moved to Florida, and rather than evict his tenants he decided to rent an apartment. He refinanced the property to take out cash during the real estate bubble. The mortgage payment had an adjustable rate which is about to increase significantly. With the new mortgage rate he would not have a positive cash flow. There was over $125,000 of equity in the property. He asked whether he can move into his investment property an protect the house as homestead in a Chapter 7 bankruptcy.

The general rule is that Florida homestead protection in bankruptcy is limited to $125,000 for property acquired less than 1215 days prior to filing bankruptcy. The issue in this situation is whether the date of acquisition of the property for homestead protection is the date the debtor moves in and makes the house his homestead, which date would be within 1215 days of filing, or the date the investor purchased the house for rental income and investment.

Several courts have held that date of acquisition is the date the debtor acquires legal title rather than the date of occupancy. In this instance, the investor probably could protect all his equity in a Chapter 7 bankruptcy even if he moved into the house just prior to filing. These courts have liberally interpreted the new law in favor of homestead protection. People can protect valuable investment residential real estate by converting the real estate to their primary residence in Florida and filing bankruptcy shortly thereafter.

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