In my November post, I discussed the basics regarding protection of your Florida Homestead from forced sale by creditors and alluded to exceptions to the rule. Let’s discuss some of those exceptions as it relates to a bankruptcy filing.
If you have acquired an ownership interest in your Florida Homestead within 1,215 of the date you file for bankruptcy, your exemption is subject to a homestead exemption cap under section 522(p) of Title 11 (the “Bankruptcy Code”). If you bought a house for the first time within the 1,215 day period, your Florida Homestead exemption is limited the amount of $160,375.00 for single debtors and $320,750.00 for married Debtors. If you bought a new residence within the 1,215 day period, you may add any equity transferred to the previous residence to the exemption limit. For instance, if you are a single Debtor, sold your home, and used $100,000.00 of equity from your old home to buy your new one, your allowed exemption would be $260,375.00. As you can see, if you have more than the exemption limit in your Florida Homestead, it is important to consider and calculate the length of time you have owned your home before contemplating a bankruptcy filing. In addition, if you have been chased by one or more creditora for several years prior to contemplating bankruptcy, you should consider what, if any, funds you have used to purchase the property, prepay your mortgage or improve the property. Creditors may look to 522(o) of the Bankruptcy Code to attempt to recover those funds based on your intent to hinder, delay or defraud them.
Another risk to your Florida Homestead exemption is the dreaded “Ponzi Scheme”. In a June, 2017 decision from the Middle District of Florida Bankruptcy Court, the Court awarded an equitable lien and constructive trust on the homestead of a Ponzi scheme investor’s Florida Homestead. The Ponzi scheme investor, who had filed for bankruptcy and was not involved in or aware of the fraud, “passively received the fraudulent transfers” which he used to purchased the Florida Homestead. The Court held that the Ponzi scheme investor’s lack of participation in the fraud was not determinative; the focus must be on the fraudulent nature of the funds and unjust enrichment. The Ponzi scheme investor had been unjustly enriched by the receipt of the fraudulent transfers that he and his wife invested in their home. Accordingly, the Court determined that an equitable lien and constructive trust should be imposed on the Florida Homestead to the extent the Ponzi scheme distributions were traceable into the Florida Homestead. The take away – be wary of investment schemes (if it is too good to be true, it probably is) and be thoughtful about the source of funds you invest in your homestead.
Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or firstname.lastname@example.org.