One of the most common concerns for Tampa Bay area residents considering bankruptcy relief has to do with their home: will I lose it or will I be able to keep it? Generally, your house is protected by a homestead exemption, which allows you to protect the equity you have in the property (the value of the property that exceeds the amount that you owe on it) from the bankruptcy court.
Adding to the bankruptcy exemptions available to Florida filers, in 2007, the Florida legislature created a wild card exemption. The wild card was intended primarily for non-homeowners and was allowed in lieu of the homestead exemption. But, with the collapse of the real estate market leaving many homeowners with zero or negative equity, many Florida homeowners seeking bankruptcy protection are opting to use the wild card.
Understanding bankruptcy exemptions is one reason to seek the assistance of an experienced Florida bankruptcy attorney. Making sure that the exemptions are applied properly so as to maximize the benefits of your Chapter 7 filing is another.
Problems With the Wild Card and Homestead Exemptions
While many bankruptcy trustees have accepted the wild card exemption without issue, some have chosen to pursue the bankruptcy filer’s home as property of the bankruptcy estate. When a home is let go in the bankruptcy proceedings, some trustees in Florida have demanded that debtors immediately vacate the home or begin paying rent to the trustee in order to remain in the home.
Fortunately, the Supreme Court of Florida as well as the Federal District Court for the Middle District of Florida stepped in to protect homeowners who claim the wild card exemption. The Supreme Court specifically allowed homeowners to remain in a home and take advantage of the wild card if doing so does not stand in the way of the trustee’s administration of the estate. The Middle District expanded on this reasoning, stating that a trustee can take steps to sell the home while it is still occupied; current homeowners do not need to vacate the property in order for the trustee to proceed.
Current bankruptcy law requires a debtor to turn over all non-exempt property to the bankruptcy trustee “unless such property is of inconsequential value or benefit to the estate.” When a house has zero or negative equity, it is unlikely that the home will sell for more than what is owed on it, making it of no value to the estate and shielding it from attack by a Chapter 7 trustee.