Bankruptcy Homestead Exemption In Florida

Bankruptcy Exemption Rules – What do you Get to Keep in Your Bankruptcy?

When comparing bankruptcy options, most consumers are more partial to Chapter 7 bankruptcy.  Chapter 7 is a shorter process, and unlike its counter-part, Chapter 13, there is no monthly payment.  But as with most things in life, the benefits in Chapter 7 bankruptcy come with a trade off.  In exchange for wiping out the debt without a payment plan, the filer is limited on the stuff they can keep. We call the stuff you can keep your “exempt property.” Anything outside of the list of exempt property is sold off (either to the bankruptcy filer themselves or to a 3rd party if the filer isn’t interested).   That’s why its so important to understand the bankruptcy exemption rules.

Does Exempt Property Impact a Chapter 13 case?

Bankruptcy Exemption Rules also play a role in Chapter 13 Bankruptcy. In Chapter 13, you can keep all of your stuff, whether it is exempt or not.

However, the bankruptcy exemptions affect how much you have to pay into your Chapter 13 plan.  When designing a chapter 13 plan to determine the amount of the payments, the filer’s situation is put through a series of calculations.  One of those calculations is called the “liquidation test.”  The liquidation test tells us that the least amount that a plan should pay toward unsecured creditors is equal to what a filer would have to give up in Chapter 7 bankruptcy.  So by way of example, if a filer had a car that had $10,000 in equity in excess of the exemptions that they would have had to give up in Chapter 7, then the filer will have to pay their unsecured creditors at least $10,000 over the life of the chapter 13 case.

What is Included in Exempt Property

(In other words, what can you keep?)

The list of exempt property depends on your residency under a quirky calculation set out under the bankruptcy code. In short, if you have lived in Florida for two years or more, you’ll probably be using Florida’s state law exemptions.  So what does Florida allow you to hold onto?  Here is an abbreviated list:

  • The Homestead allowance: your primary residence.
  • If you live in a mobile home, this is protected as well.
  • $1,000 in personal property.  For most chapter 7 filers, this allowance is sufficient to cover the general household belongings.  Your pots, your pans, you clothes, your household furniture, etc.
  • $4,000 wildcard exemption.  If you don’t claim a homestead exemption, you get an additional $4,000 that can be flexibility allocated.
  • $1,000 in equity in a vehicle.  Keep in mind, you only have to exempt the equity in the vehicle, so if you have a loan against the vehicle that creates limited equity, you won’t need much exemption.
  • Most retirement accounts. The normal rule of thumb is that if it’s tax-exempt, like an IRA or 401(k), it qualifies for the exemption.
  • You may also hold on to property that qualifies as a “tenancy by the entirety” (TBE).  TBE is a bit of a more complicated subject, but generally property that you own with jointly with a spouse can sometimes be subject to additional protections.

What do I do if I have something that is worth more than the exemptions?

It is quite common that a filer may have an asset which, under the Bankruptcy Exemption Rules, is worth more than what the exemptions provide for.  This is particularly common with a vehicle.  In a chapter 7 case, there are usually 3 options for an asset that is over the exemptions:

  1. You can give the asset up.
  2. You can pay the trustee the difference between the asset value and the exemption.  So if the asset is worth $2,500, and the exemption is $1,000, you would pay the trustee the difference ($1,500).  We call this payment a “buy back.” Or
  3. You can finance the buy back.  Companies like 722 Redemption will sometimes loan the money for a buy back.

Buy backs sound scary, but this is a place where it really helps to have a professional at your side during the bankruptcy process.  Usually, back backs can be worked out under favorable terms with a trustee, but its important to have experienced guidance during the process.

For more information on Bankruptcy Exemption Rules In Florida, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (727) 538-4188 today.

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