The Good
Florida’s homestead exemption is the most generous one I’ve ever encountered. While most states allow you to protect only a portion of equity, Florida law does not limit the equity to be protected. Federal bankruptcy exemptions, for example, only allow you to protect $22,975.00 of equity in your home. Florida has opted out of the federal scheme and has no such limitation. It is therefore conceivable to exempt a fully paid-for $1,000,000 property from your bankruptcy creditors.
The Bad
There are, however, certain important limitations to this exemption. For one, if you have more than $125,000.00 in equity, you must have owned the property for at least 1215 days in order to exempt the rest. Someone with substantial equity over $125,000.00 may need to wait to file bankruptcy until they have owned their home longer than 1215 days in order to fully protect it.
There’s another limitation worth noting: The homestead exemption only covers ½ acre of land unless the property is located outside of a municipality. So if, for example, your house sits on .6 of an acre, is worth $500,000.00, and has no mortgage, you would only be able to exempt out the percentage that comprises one half acre. In this case, the math would look like this: $500,000 (equity) x .1 (one tenth of an acre over the one half acre limit) = $50,000.00 that is not covered by the homestead exemption. This can obviously present serious issues with a Chapter 7 filing.
The Ugly
Let’s assume you’re claiming Florida’s homestead exemption in your Chapter 7 bankruptcy. I hope you don’t have much else besides your home. Why? Because if you’re claiming that homestead exemption, you’re only entitled to an extra $1,000 in personal property, and an extra $1,000 towards equity in your car. Personal property includes everything that is not real property: bank accounts, cars, furnishings, jewelry (yes, even wedding rings), computers, cell phones, even the clothes on your bank and in your closet. Most people have far more than $1,000 worth of personal property and vehicle equity, making this the #1 problem I see with Chapter 7 filings. If you didn’t have a homestead, you’d be able to claim the “wildcard”: an extra $4,000 exemption you can apply to any assets.
The takeaway from this is that there are both significant pros, and equally significant cons, to Florida’s homestead protection in bankruptcy. If you own a home, but have almost nothing else in terms of assets, you may be in good shape. However, for those homeowners who have assets and vehicle equity over the $1,000 limits mentioned in this article, you may want to consider filing Chapter 13 instead. In any event, talk to an experienced bankruptcy attorney before making any decisions. Remember: Once you file a Chapter 7, you may not be able to back out.