I came across a bankruptcy case which is important for debtors contemplating moving to Florida from another state and filing bankruptcy immediately. In this case, a debtor lived in a state which had little or no homestead protection. In April, the debtor and his wife moved to Florida and bought a piece of property titled in their joint names. Two months later, in June, they filed Chapter 7 bankruptcy, and one month after filing bankruptcy the moved into a house on the same property. The issue was whether the debtor could claim an exemption for the property. The bankruptcy judge said he could exempt the property. Here’s why and how:
The general rule is that a bankruptcy debtor cannot claim Florida exemptions, including Florida homestead, in bankruptcy unless he has been a Florida resident for two years prior to filing. This debtor lived in Florida for less than three months prior to filing bankruptcy. Therefore, his bankruptcy is under the exemptions of his former residence which has little or no homestead protection. Even if the debtor were under Florida exemptions, he would not get homestead protection in bankruptcy because he and his wife did not occupy the house until after he filed bankruptcy.
The judge found that his real estate purchased in April was exempt as tenants by entireties property. Property owned jointly by married couples is deemed to be owned in a tenancy by entireties (T by E). T by E property is not party of the bankruptcy estate and is therefore “exempt”(unless and to the extent the debtor and his non-filing spouse have joint debts). But is not really “exempt” because neither the Florida statutes nor the Florida constitution are the source of T by E protection. In the bankruptcy code, T by E property is not excluded from the bankruptcy estate by the code sections dealing with exempt property, which code sections include the two-year waiting period for new Florida residents. The bankruptcy judge pointed out that T by E property is excluded from the debtor’s bankruptcy property by a different code section which provides exclusion of T by E assets owned by the debtor immediately prior to his filing bankruptcy. The T by E section has no two year waiting period.
The case held that even though the debtor purchased the real estate with his wife just three months prior to filing bankruptcy it was “exempt” as T by E property. The judge found no evidence of fraudulent conveyance; the debtor simply moved to Florida and bought a home to live in. Under the strict language of the statute nothing more is required to exclude the T by E property from his bankruptcy.
This case provides non-resident debtors a possible plan to move to Florida, buy a homestead property or other assets with their spouse, and file bankruptcy immediately upon becoming a Florida resident. Only debtors with no significant joint debts can use this planning technique.
Post updated on