We believe that everyone deserves a fresh start. There are legal solutions available that can help you achieve that fresh start. Through this monthly newsletter, it is our goal to offer you information, as well as solutions, garnered over 38 years of combined legal experience practicing bankruptcy law and student loan law. If you need assistance with your student loans, our goal is to demystify student loans and put you in control of your options. If you are considering bankruptcy, we understand the seriousness of choosing to file bankruptcy, and we want to give you power through knowledge to help you make that decision. Please contact us for a no-cost consultation.
Sincerely,
Jonathan Leiderman and Zach Shelomithwww.lslawfirm.netlslaw@lslawfirm.net954-920-5355
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When Your Home May Not Be Your Castle
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 Most of our bankruptcy clients and prospective clients believe that their home is absolutely protected from their creditors' claims. Generally speaking, their belief is correct. However, it is not always the case and as home prices continue to rise in South Florida, we wanted to point out some potential pitfalls relating to Florida's "unlimited" homestead exemption.
First, a little background.
When speaking about the homestead exemption in Florida, one may actually be referring to 1 of the 3 different types of homestead exemptions under Florida law: - Article X, Section 4(a) and (b) of the Florida Constitution, which protects your homestead from forced sale;
- Article X, Section 4(c) of the Florida Constitution, which provides restrictions on devise and alienation; and
- Article VII, Section 6 of the Florida Constitution, which provides an exemption from taxation. (The Florida property tax homestead exemption reduces the value of a home for the assessment of property taxes by $50,000.00, but the second $25,000.00 does not apply to the school portion of property taxes.)
It is Article X, Section 4 of the Florida Constitution that causes most people to mistakenly believe that their home is 100% protected from their creditors.
Section 4(a) provides that "There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon...the following property owned by a natural person: a homestead..."
Homestead exemptions are only available on a person's primary residence. It does not apply to businesses, investment properties, or second residences. If you are primarily a resident of another state and you take advantage of another state's tax credits, you cannot utilize the Florida homestead exemption. In addition, the homestead exemptions are only available to U.S. citizens, permanent resident aliens, or other individuals who are able to form the intent to remain in the United States permanently under immigration laws.
A homestead property can include more than just a single family home. It can be a condominium, a mobile home, or a manufactured home.
Section 4(a) also provides 4 exceptions in which a creditor can force the sale of your homestead to collect a debt owed to them: - If the State of Florida, a county within the state, or a municipality is owed past due property taxes or assessments, the entity can force the sale of your homestead.
- If a creditor is owed money for work performed in improving or repairing the property, the creditor can force the sale of your homestead.
- If you fail to pay your mortgage, your mortgage company can force the sale of your homestead.
- If you fail to pay your homeowners association fees or your condominium association fees, your association can force the sale of your homestead.
It is true that Florida's homestead exemption is one of the broadest in the United States.
Outside of bankruptcy, the value of the home that can be protected from creditors is unlimited, so long as the home occupies no more than ½ acre within a municipality or 160 acres outside of a municipality.
However, things can drastically change once a debtor files bankruptcy.
First, under 11 U.S.C. 522(o), the value of a debtor's interest in a homestead shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the bankruptcy petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt.
Basically, a debtor in bankruptcy may not claim as exempt his homestead, or any portion of his homestead, that was purchased with non-exempt assets and actual fraudulent intent to hinder, delay, or defraud a creditor. That is a very scary concept to a client or a prospective client who has been made to believe that his or her homestead exemption is bulletproof. It is even scarier to think that a trustee can look back 10 years to see where the debtor obtained the money to purchase and/or add equity to his/her homestead.
Since 2008, this really hasn't been an issue. Not many properties in South Florida had enough equity for this section to be a concern (it is the equity in a property that a trustee will try to get at so it can be distributed to the creditors in a bankruptcy). However, as the foreclosure rates continue to drop (according to CoreLogic, the foreclosure rate in the greater Miami area fell to 6.6% in June 2014, its lowest level since the real estate crash), and home prices continue to rise (according to a recent article in the Miami Herald, the median price of an existing single-family home in Broward County rose 5.7% to $280,000.00 in June 2014 from June 2013), more and more debtors will be heading into bankruptcy with homesteads that will have significant amounts of equity.
Bankruptcy trustees are salivating.
A debtor who has acquired a homestead within the last 10 years that has a substantial amount of equity should be asked a number of questions to determine his/her intent at the time of the purchase or pay down of his/her homestead:
- Was the debtor being sued at the time of the purchase or transfer?
- Was the purchase made or did the transfer occur after a judgment was entered against the debtor?
- Did the debtor use substantially all of his/her assets to make the purchase or transfer?
- How close in time to the filing of the bankruptcy did the purchase or transfer occur?
Second, under 11 U.S.C. 522(p), a debtor may not exempt any amount of interest in a homestead that was acquired by the debtor during the 1215 days (about 3 1/3 years) before the bankruptcy petition was filed that exceeds $155,675.00.
This section was enacted to close a loophole in which wealthy debtors could protect large amounts of money from creditors by filing bankruptcy after converting non-exempt assets into exempt homesteads in states like Florida, which have unlimited homestead exemptions. It doesn't limit interests obtained more than 1215 days before bankruptcy or amounts that can be demonstrated to have been rolled over from a homestead owned in Florida more than 1215 days before the bankruptcy filing. Plus, even if the cap applies, it still allows each debtor to protect $155,675.00.
Again, this section has not really been a concern since 2008. However, it should become more of a concern as property values continue to increase.
If you are considering filing bankruptcy, and you own a homestead with equity, it is imperative that you consult with bankruptcy counsel to discuss the ramifications of 11 U.S.C. 522 (o) and (p) before you file so that hopefully your home can truly remain your castle.
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Between the fall of 2009 and the spring of 2010, a debtor sold non-exempt stocks in a series of brokerage transactions and received $45,000.00. By that time, she had already stopped paying her creditors. She purchased her homestead property in January 2010, 6 months before she filed a Chapter 7 bankruptcy. In between the time she received the $45,000.00 and the day she filed bankruptcy, she used the money to improve her homestead property. On the day she filed her pro-se bankruptcy petition, the homestead property had equity in the amount of $50,000.00. However, the debtor failed to disclose the brokerage transactions on her Statement of Financial Affairs. The debtor went into the bankruptcy thinking her entire homestead was protected. However, the Chapter 7 Trustee filed an objection to her claim of exemptions pursuant to 11 U.S.C. 522(o), arguing that her homestead exemption should be reduced to the extent that she, with the intent to hinder, delay, or defraud a creditor, converted non-exempt assets into homestead property within 10 years before the bankruptcy filing. The Judge, after concluding that the debtor converted non-exempt property into homestead property during the year preceding her bankruptcy filing with the intent to hinder creditors, sustained the Trustee's objection. The debtor got to keep her homestead. However, she had to pay $45,000.00 to her creditors. If only this debtor had consulted with bankruptcy counsel before selling her stocks, using the proceeds to improve her homestead, and filing bankruptcy on her own. Maybe her entire homestead would have been protected.  A debtor purchased his homestead property on July 1, 2011. He filed a pro-se Chapter 7 bankruptcy on July 1, 2013. On the petition date, the property was worth $300,000.00. There was 1 mortgage on the property for $100,000.00. The debtor claimed the homestead property as exempt on his Schedule C (the entire $200,000.00 of equity). The debtor went into the bankruptcy thinking his entire homestead was protected. However, the Chapter 7 Trustee filed an objection to his claim of exemptions pursuant to 11 U.S.C. 522(p), arguing that any equity over $155,675.00 is not exempt since the debtor purchased the property within 1215 days of the petition date. The Judge, after concluding that the debtor's homestead property was, in fact, worth $300,000.00, sustained the Trustee's objection. The debtor had the option to keep her homestead. However, she would have had to pay $44,325.00 ($200,000.00 minus $155,675.00) to his creditors in order to do so. If only this debtor had consulted with bankruptcy counsel before filing bankruptcy. An experienced bankruptcy attorney would have discussed the impact of 11 U.S.C. 522(p), and advised him to postpone the bankruptcy filing until at least 1216 days had passed since he purchased his homestead property so that all of its equity would have been exempt. |
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| Attorney Spotlight: Felipe Plechac-Diaz |
 Felipe Plechac-Diaz is an associate attorney at Leiderman Shelomith, P.A. He handles personal bankruptcy matters, corporate bankruptcy matters, assignments for the benefit of creditors, and bankruptcy litigation matters. Prior to joining the firm, Felipe served as a law clerk for the Honorable Robert A. Mark of the United States Bankruptcy Court for the Southern District of Florida. He earned his J.D. from the University Of Miami School of Law, and his B.A. from the University of Florida. Felipe commonly represents debtors, creditors, and Chapter 7 bankruptcy trustees in all aspects of bankruptcy. He enjoys helping people solve their financial problems. He chose to focus on bankruptcy law because he finds it rewarding to see his clients obtain a fresh financial start. |
About Leiderman Shelomith, P.A.
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Leiderman Shelomith, P.A. was founded by Jonathan Leiderman and Zach Shelomith in 2003. The firm quickly built an excellent reputation across South Florida as a boutique bankruptcy law firm, handling both personal and corporate bankruptcy matters, including Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, as well as state court Assignments for the Benefit of Creditors. Felipe Plechac-Diaz joined the firm as an associate attorney in 2014. The firm began representing borrowers with their federal, state, and private student loan matters in 2014, including the defense of student loan lawsuits.
The firm's attorneys have been recognized as a South Florida Legal Guide Up and Comer, a Super Lawyer Rising Star for the State of Florida, a Florida Legal Elite Up and Comer, and a Florida Legal Elite. Our attorneys are members of the National Association of Consumer Bankruptcy Attorneys, the American Bankruptcy Institute, and the Bankruptcy Bar Association for the Southern District of Florida, among other organizations. The firm's attorneys are also frequent lecturers at seminars and community programs, speaking about bankruptcy law to attorneys and the general public.
The firm, Mr. Leiderman, and Mr. Shelomith, are AV® Preeminent Rated Attorney's, awarded by LexisNexis® Martindale-Hubbell®, for having obtained the highest possible peer-review rating for their ethical standards and legal ability.
The firm represents debtors, creditors, and bankruptcy trustees in all aspects of bankruptcy cases, including litigation and appeals, handling both liquidations and reorganizations. The firm also represents borrowers in all aspects of student loan law, including federal, state, and private student loans. Our office is conveniently located in suburban Fort Lauderdale, Florida, and is easily accessible from anywhere in Miami-Dade, Broward, and Palm Beach Counties. We handle bankruptcy debtor cases across the Southern District of Florida, particularly in Broward, Miami-Dade, Palm Beach, and Monroe Counties, and other bankruptcy cases and student loan matters throughout the entire State of Florida.
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