In Valone v. Waage, No. 14-11457 (11th Cir. 2015), the 11th Circuit opined on an issue that has been hotly debated regarding Florida bankruptcy exemptions. That is, is a debtor forced to take the homestead bankruptcy exemption where they want to remain in their home.
Florida Bankruptcy Exemptions
The exemptions in a bankruptcy case play an important role. For a Chapter 7 case, the exemptions define the property that a bankruptcy filer is allowed to keep in their “fresh start.” In a Chapter 13 case, the exemptions influence the amount of money that a bankruptcy filer has to pay into the Chapter 13 payment plan. While bankruptcy is filed in the federal court system, bankruptcy filers look to Florida laws for their Florida bankruptcy exemptions.
The homestead exemption plays an especially important role in bankruptcy exemption planning. The homestead exemption allows a bankruptcy filer to protect their primary residence and the equity contained within. When the homestead exemption is not utilized, a consumer debtor is entitled to an additional $4,000 exemption for personal property, typically referred to as the “wild card” or “super” exemption. This extra $4,000 can be used for vehicle, liquid funds, or to protect other important assets.
For those bankruptcy filers who do not have equity in their home, they may be strategically inclined not to use the homestead exemption so they can access the super exemption. But such a strategy has previously been disapproved of in Tampa Bankruptcy Courts.
In the Valone case, the Chapter 13 debtor confronted this issue with Trustee Jon Waage, one of the two standing Chapter 13 trustees in the Tampa district. The 11th Circuit reversed the District Court, finding that the homestead exemption is not self executing. A debtor is not required to take the homestead exemption where they have another basis for protecting their home. The Court concluded that each case should be considered on its own facts.
Exemption planning in bankruptcy is a highly important component of a case. Proper exemption planning will maximize a bankruptcy filer’s retention of their assets and their rights. Conversely, poor exemption planning could unwittingly cause the loss of a bankruptcy filers property, home, or important rights – such as the right to sue or the right to a tax refund. Contact a Clearwater Bankruptcy Attorney today today to discussion how the exemptions impact your bankruptcy case.
