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How to Protect Nonexempt Property in a Chapter 7 Bankruptcy

home-in-handsIf you have ever looked into filing a Chapter 7 Bankruptcy, you probably found out rather quickly that the purpose of a Chapter 7 Bankruptcy is to liquidate all of your assets in order to pay your creditors; except for a few things you might be able to exempt. You then most likely became concerned whether or not you would be able to keep your property as you found out, that Florida does not offer much in the way of exemptions. Specifically, other than being able to protect the majority of retirement accounts, the main and most common Florida exemptions used are the following:

  • The Homestead Exemption: Unless you have owned your current homestead property and/or your previous homestead property for 1215 days prior to filing bankruptcy, then you can only exempt up to $146, 450. If you file jointly, then you can protect up to $292,900;
  • Personal Property Exemption: If you claim the Homestead Exemption, then you are able to exempt only up to $1000 of personal property; $2000 of person property if filing jointly. If you do not use the Homestead Exemption, you can exemption up to $4000 in personal property; $8000 if filing jointly; and
  • $1,000 in a motor vehicle, or $2,000 if filing jointly.

Due to these very limited exemptions available in Florida, those who have bank accounts with high balances or valuable personal property stand to loose all or if not most of it if they file a Chapter 7 Bankruptcy. However, courts have held over and over again that you are able to convert nonexempt property into exempt property before filing bankruptcy. But you must be very careful before doing so and there are limitations of what can be done. It is also frowned upon to plan for bankruptcy.

The safest thing to do with nonexempt property prior to filing bankruptcy is to turn that non-exempt property into a homestead. But, you cannot simply use your nonexempt assets to make large unnecessary improvements to an already owned homestead property. The best thing to do is to put nonexempt assets into a new homestead property.

The key case is In re Miller, 188 B.R. 302(Bankr. M.D. Fla. 1995), in which the debtors sold a piece of commercial real property and then used a portion of the proceeds to purchase a homestead property. Despite the court clearly finding that the sole purpose behind purchasing the homestead was to keep the proceeds away from their creditors, the debtors were allowed to claim the homestead property exemption. The judge came to this conclusion based on that fact that the homestead exemption in the Florida Constitution only contains three (3) exceptions to the rule. The three listed exceptions do not include the conversion of an nonexempt asset into a homestead property.

This result was reached again in In re Clements, 194 B.R. 923 (Bankr. M.D. Fla. 1996). In this case the debtor, whom had always lived in Alabama and had a homestead property there, sold his homestead Alabama property and then purchased a new homestead property in Florida. He then waited 1 year and filed bankruptcy; claiming the Florida property as his homestead.

If you are considering bankruptcy and believe you have assets that cannot be exempted if you file, you should speak with an experienced bankruptcy attorney immediately before doing anything. Unlike the homestead exemption and the cases mentioned above, transferring nonexempt assets into another type of exempt property might not be sufficient protection. Call and speak with an attorney at the Law Office of David M. Goldman, PLLC today by calling (904) 685-1200.

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