A number of States, including Florida, provide valuable creditor protection for homesteads, and such protections can act to exempt a homestead from the reach of creditors in a bankruptcy proceeding. Because of perceived abuses of these protections, Section 522(p)(1) of the Bankruptcy Code was enacted. This provision caps the portion of a homestead exemption allowable in a bankruptcy proceeding at $125,000 (now $136,875 per inflation adjustment) for interests in real property that a debtor acquires within the 1,215-day period immediately preceding bankruptcy.
Clearly, then, if a debtor purchases a homestead in Florida and files a petition within 1,215 days, only the first $136,875 in value will be protected, and not the entire value if it exceeds $136,875. What happens if the debtor owned the property more than 1,215 days before filing for homestead, but only made the property his or her homestead within the 1,215 period?
According to a recent Bankruptcy Court case, this conversion of status within the 1,215 day period does not trigger the $136,875 limitation. Such a conversion was held not to be an acquisition of an "interest" within that time period.
The Bankruptcy Courts have been inconsistent on this issue. In Nevada, a Bankruptcy Court held that the dollar limitation was triggered under similar facts. However, courts in Texas and Massachusetts have ruled similarly to Florida.
In re Reinhard, 377 B.R. 315 (Bankr.N.D.Fla. 2007)