Have you inherited your parents homestead property? Do you own it free and clear from any mortgage or lien? Do you reside in the property? Are you considering filing a Chapter 7 Bankruptcy? If so, then I urge you to consult with an attorney at the Law Office of David M. Goldman, PLLC. Each one of the questions posed above are key factors in determining what affect a Chapter 7 Bankruptcy filing may have on your inherited real property.
In Florida there is a broad homestead exemption available to those filing bankruptcy; however, you must first meet some very strict requirements. If you acquired the real property at least 1,215 days (approximately 3 years and 4 months) prior to filing the bankruptcy and it is your homestead, then you may use an unlimited homestead exemption, but if you have not, then your homestead can only be protected up to $125,000. It is also important to note that you do not have to reside in the subject property as your homestead for the 1,215 days prior to filing bankruptcy in order to enjoy full protection. For example:
Your mother and father have lived in their current home in Florida as their primary residence for the last 15 years and even filed their homestead exemption with the state. When they pass away, they leave their homestead property to you; free and clear from any mortgage or lien. However, you do not move into the property and instead you continue to reside with your wife and children in another home, which also happens to be in the state of Florida and which you consider your homestead.
Fast forward 8 years and your youngest child has moved away to college. You no longer need the size home you currently live in, and therefore, you decide to sell your current home and move into the home you inherited from your parents. You do so, declare it your homestead, and do not transfer any equity from your previous home into the inherited property.
Fast forward another 2 years and you find yourself in the position where you need to file bankruptcy due to being laid off and being unable to acquire new employment. You need to know whether your inherited property is fully protected. It is worth more than $125,000, but you have not lived in it as your homestead for the full 1,215 days prior to filing.
Luckily this almost exact same scenario has already been heard before the United States Bankruptcy Court in the Northern District of Florida in Venn v. Reinhard (In re Reinhard), 377 B.R. 315 (Bankr. N.D. Fla. 2007). In Reinhard, the court ruled that even though the debtors had not resided in the subject property 1,215 days prior to filing bankruptcy, they had acquired the property more than 1,215 days prior to filing and had transferred their previous homestead to the new homestead without putting any equity from the old homestead into the new. The United States Bankruptcy Court reasoned that:
Homestead is simply a status, constitutionally defined, which exempts certain property from execution and limits its alienability. It is not a property interest. When a Florida resident’s property acquires homestead status, the owner does not acquire any of the rights traditionally associated with property interests: the right to possession, the right to use, the right to transfer the owner already holds whatever of these he has. Accordingly, homestead status in Florida is not properly conceptualized as a stick in the bundle; rather, it is a protective safe in which the bundle is put.” Reinhard at 319.
The United States Bankruptcy Court further reasoned that 11 U.S.C. § 522(p) does not require real property to be acquired as your homestead 1,215 prior to filing bankruptcy. Id. at 320-321. The real property simply just needs to be acquired 1,215 days prior to filing. Id.