Forty Month Homestead Rule: Does It Count Time Of Occupancy Or Time Of Ownership?

There is less homestead protection in bankruptcy than under Florida law outside of bankruptcy court. Florida law provides immediate homestead protection without any limit on value. In bankruptcy, a debtor may protect only $137,000 of homestead value for the first 40 months. A client called me today because he was concerned about whether or not he passed the "40 months test" for homestead protection if he had to file bankruptcy. The client purchased a residence in Florida four years ago for $350,000 all cash. The client has been renting a home in Georgia during a temporary job assignment. He intends to return to the Florida house after the temporary assignment, or alternatively sell the Florida house and look for a new home when he gets back to the Florida home office.

The client said he read an online article written by another attorney that he interpreted to jeopardize his homestead exemption in a bankruptcy. The article stated that bankruptcy law requires 40 months of continuous occupancy in order to qualify for unlimited homestead protection in bankruptcy. The client thought his homestead protection would be limited to $137,000 because he has been temporarily living in Georgia.

What my client read, or thought he read, is not correct. The bankruptcy law does not require 40 months continuous occupancy for unlimited homestead protection; the Bankruptcy Code limits homestead exemptions in Florida to $137,000 if the debtor "acquired their home within the 1215 days before the filing." Courts interpreting the statute found that homestead exemption is based on the time of ownership and not time of occupancy.

Courts also have held that the time limit applies to acquisition of equity and not acquisition of legal title. If a debtor sells one homestead and rolls-over all the equity into a new homestead the clock does not reset because no additional equity was acquired. Paying down a mortgage during a 40 month time period does reset the clock because the debtor would have acquired new equity.

Comments

[Deborah Martz Lysaght]

A lawsuit has been filed in connection with a personal guaranty obligation. Can a Chapter 7 filing discharge such a claim before the creditor gets a judgment?

Also, is the "look back" period for transfers different under federal and Florida bankruptcy statutes?

[olias]

I have a chapter 13 I have been paying on for 2 yrs. They dismissed the bankruptcy because I was two months behind. I have the house sold and now the Bank wants to charge the interest for the last 2 yrs. for the payoff.Can I just roll into a chapter 7. Have owned home for over fives years.

[Leslie Biagini]

I bought land 2 years ago and started to build ahouse. It took 1 year to finish and got CO Dec 31,2009. I have applied for homestead in this house. When would the time start for homestead protection from the date of purchasing the land, starting construction, or when I got my CO for the countdown 0f 1215 days? Thanks

[Ann]

I am considering filing a Chapter 7 bankruptcy. However, I already sold my homestead property and got cash. In your article you mention "selling your homestead and rolling the equity into a new homestead". Is there any specific time frame in which this must be done? I heard some states give you 6 months to buy a new homestead with any cash you received. If you do not make your purchase during this time, then your cash is NOT exempt in the bankruptcy. In Florida, how would the cash from your homestead be treated- Exempt or NOT Exempt...and is there a timeframe??