After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), courts have interpreted the limits on homestead protection. In most states, including Florida, debtors can only exempt up to $125,000 of their homestead property if they filed for bankruptcy within 1,215 days of acquiring the property. In the case of Rasmussen, a couple in Florida was able to “stack” their exemptions, meaning each spouse could claim their own $125,000 exemption even though they owned the property together. This allowed them to protect more of their home’s value in their bankruptcy case. The court decided that joint debtors in Florida can combine their homestead exemptions to protect up to $250,000 of their home’s value in bankruptcy. This is because Florida law doesn’t limit the homestead exemption for joint owners. Also, the court ruled that the value of the home that increases during the 1,215 days before filing for bankruptcy can be protected, as long as it’s not more than $125,000. The court said that this protection only applies to active increases in the home’s value, like paying off the mortgage or making a down payment. The court said that the increase in value of the debtor’s home during the 1,215 days before filing for bankruptcy doesn’t count towards the limit on the value of the home that can be protected in bankruptcy. The court also said that if the debtor keeps making mortgage payments during that time, those payments might count towards the limit, especially for people with 15-year mortgages. Many homeowners have seen their home values go up in recent years, but there are some rules that affect how much of that increase can be protected in a bankruptcy. The Rasmussen decision says that only a certain amount of home value can be protected, and if you used exempt assets (like money from a life insurance policy) to buy or improve your home within a certain time period before filing for bankruptcy, that can affect how much of your home’s value is protected. It’s important to understand these rules if you’re dealing with bankruptcy and trying to keep your home. If you’re thinking about using your protected assets to invest in a home, be careful. The law might not protect your new home if you file for bankruptcy within 1,215 days. It’s something to think about before making any big investment decisions. On the bright side, if you do wait out the 1,215 days, your home’s value will be protected. So, there are pros and cons to consider when deciding whether to use your protected assets to buy a home. An unmarried doctor in Florida bought a house for $1 million and later declared bankruptcy. The house’s value went up to $1.5 million, and the doctor had $800,000 in equity. The court decided that only $100,000 of that equity could be used to pay off debts, because the rest was from the value of the house going up and money from the doctor’s previous house sale. So, $700,000 of the house’s value was protected from being used to pay debts. If a court follows the Rasmussen opinion, even if a person uses exempt money to pay off a mortgage or make a down payment on a house, the amount over the legal limit can still be taken by creditors. Also, if someone makes regular mortgage payments that include paying off the loan principal, that amount is also included in the total that can be protected from creditors. This means that the total amount of money that can be protected when buying a home may be less than expected. If someone has a 15-year mortgage instead of a 30-year one, they could invest less money in their home before reaching the statutory cap. This could mean that they have less protection from creditors. On the other hand, if someone invested their money in a homestead instead of other assets, they could have more protection from creditors, especially if they are married. This means that their home could be fully protected from creditors during their lifetime. So, it might be a good idea to invest in a homestead instead of other assets. If you’re buying a new home in Florida and want to protect it from creditors, here’s what you should know:
1. Be careful about investing already protected assets into your new home, as it could make them vulnerable to creditors.
2. Investing up to $125,000 ($250,000 for a married couple) and equity from your previous Florida home will give you full protection, regardless of how much your new home appreciates.
3. Any investment in excess of $125,000 ($250,000 for a married couple) during the 1,215-day period before filing for bankruptcy won’t be protected.
In simple terms, be cautious about investing too much into your new home if you want to keep it safe from creditors. These are legal cases and laws that may not apply if you are living outside of Florida. Make sure to check your own state’s laws. The author of this information is a lawyer who is an expert in tax and estate law. This column is from the Real Property, Probate and Trust Law Section. It’s about upholding the principles of duty and service to the public, improving the administration of justice, and advancing the science of law. It’s important to follow these principles as a member of The Florida Bar.
Source: https://www.floridabar.org/the-florida-bar-journal/rasmussen-court-allows-both-spouses-125000-exemptions-and-protects-appreciation-within-1215-days-of-bankruptcy/
Leave a Reply