Contrary to popular belief, you don’t have to lose everything when you file bankruptcy. In fact, if you have equity in your residence, your Florida homestead exemption may be able to help you protect your investment.
What Does it Mean to Have Equity?
If your home is worth more than you owe the lender, the difference is called equity. So if your home is worth $250,000 and you owe $200,000, your equity in the home is $50,000.
* If you filed a Chapter 7 bankruptcy, your home won’t be sold if the homestead exemption covers all of the equity.
* If you filed a Chapter 13 bankruptcy, you will likely keep your residence. However, you will be required to reimburse your creditors the portion of your equity that the exemption doesn’t protect. That portion will be added to your repayment plan.
What are Exemptions?
Exemptions play an essential role in both Chapter 7 and Chapter 13 bankruptcy. In a Chapter 7 filing, exemptions determine which property you get to retain.
In a Chapter 13 bankruptcy filing, exemptions help calculate how much you’ll have to pay to your unsecured creditors. Your exemptions can make or break a Chapter 13 filing.
How Does the Homestead Exemption Work?
A homestead exemption is a legal provision that protects a home from some creditors in the event of the death of a homeowner spouse or a bankruptcy filing. The homestead tax exemption can also provide ongoing property-tax relief. Like all of your property, the equity in your home is an asset in bankruptcy.
Bankruptcy exemptions, including the homestead exemption, permit a debtor to protect property required to maintain a household and employment.
In Florida, the homestead exemption is unlimited for your equity in your primary residence provided you have owned the house for 40 months. If you’ve owned the house for less than 40 months, an individual can protect $125,000 of their equity in the home, or $250,000 as a couple.
In a Chapter 7 bankruptcy, the trustee sells the non-exempt property. If your house has non-exempt equity, the bankruptcy trustee will sell the home, pay off the mortgage and reimburse you the homestead exemption amount. The remaining proceeds will be applied to fees and unsecured loans, such as credit card balances, utility, and medical bills.
A Chapter 13 bankruptcy trustee won’t sell your home. Instead, you can keep non-exempt property by agreeing to pay the non-exempt portion through your repayment plan. However, if you don’t have the income to support this, the court may deny your plan.
Federal Bankruptcy Codes
Some states allow you to choose between the state’s bankruptcy codes and exemptions, or the federal codes. Florida is similar to many other states across the country and does not permit the use of the federal bankruptcy exemptions. Florida homeowners will use Florida exemptions in their bankruptcy filing.
Florida’s bankruptcy exemptions are considered favorable for homeowners. Individuals can exempt all of the equity in a residential property that meets Florida’s guidelines, as well as apply unlimited exemptions for annuities and the cash surrender value of a life insurance policy.
Exemption Domicile Rules:
* You must be a Florida resident for at least 730 days before filing for bankruptcy to claim the Florida exemptions.
* If you weren’t living in any one state during the two years before filing for bankruptcy, the exemptions of the state you lived in for the majority of 180 days before the two-year period that immediately preceded your filing will apply. This is important for snowbirds and part time Florida residents.
What to Do Next?
We understand this all may be a little overwhelming.
That’s why the bankruptcy law offices of Richard V. Ellis are here to help. If you live in the Sarasota or Bradenton area and are considering bankruptcy, call today. We are here to help sort it all out and come to the best solution for your situation.
