Sunday, October 02, 2005

Does the $125,000 Homestead Exemption Cap Apply in Florida?

Inside and outside of bankruptcy, an individual’s homestead is exempt under Florida rule from the reach of his or her creditors (with some exceptions). In the recent Bankruptcy Act, Congress limited this protection in bankruptcy to the first $125,000 of value of a homestead if the debtor has owned the homestead for less than 1,215 days. Or at least, that is what everyone originally thought.

An opinion of an Arizona bankruptcy court (In re McNabb) held that the $125,000 cap did not apply in states such as Arizona (and by implication Florida) where state legislatures have officially "opted out" of the Federal scheme of exemptions found in the Bankruptcy Code. This opinion was based on a literal reading of the statute, which apparently was not well drafted and left the door open for this interpretation.

The bankruptcy courts in Florida have now entered the fray. In a recent ruling, Judge Mark of the Southern District of Florida decided that the cap did apply - the opposite finding of In re McNabb. How this issue will be ultimately resolved is unknown (including resolution through the passage of a Congressional "glitch" bill), but Judge Mark’s ruling is clearly not heartening to Florida debtors who have not owned their homesteads for the requisite 1215 days.
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