A reader asks in an email whether a creditor can go after fire insurance proceeds owed to the debtor by the fire insurance company for a fire loss suffered to the debtor’s Florida homestead? The debtor was forced to move to another residential address because of the fire.
Generally, proceeds receivable from a homestead, either sale, refinance, or insurance proceeds, are part of the homestead exemption because they all represent the debtor’s equity in his home. I do not think a creditor could garnish fire insurance proceeds. Once the fire insurance proceeds are received and then deposited in a debtor’s bank account they could be subject to a garnishment of the bank account. On the other hand, if the debtor showed he intended to reinvest the fire insurance proceeds in a new home the proceeds would be protected in a bank for a reasonable time.
The fact that the debtor/homeowner moved to a new homestead before the insurance company paid the money should not diminish the protection. Yes, the debtor moved to a new residence and may not intend to return to the homestead property, but the move from the homestead was involuntary as being forced by fire damage. Forced absence from a homestead does not disqualify homestead creditor protection.