When a Florida resident ponders filing a petition for debt relief in bankruptcy court, the most commonly asked question is, “Will I lose all of my property?”
The happy answer is “No,” but an understanding of Florida laws protecting a person’s property from seizure or attachment by a creditor helps make this answer more accurate.
The homestead is almost entirely safe under Florida’s general exemption
Florida law specifies that a family’s home is almost entirely exempt from the claims of creditors, except any institution that holds a mortgage on the premises. The exemption is provided by the state’s constitution: a rural home (one outside the boundaries of a municipality) is exempt together with 160 acres of adjacent land.
An urban home within the boundaries of a municipality plus 0.5 acres is exempt from the claims of creditors.
Other helpful exemptions include wages, life insurance policies, life insurance annuities, and disability income benefits. A variety of government benefits, such as social security, veterans’ benefits, military survivor benefits, and disability benefits are exempt. Cars are exempt up to $1,000 of their equity. Other exempt pensions include railroad workers pensions, private pension plans, and any profit-sharing plan that is deemed “reasonably necessary” for the support of the debtor and any dependent.
If the family home is a homestead, the personal property exemption is increased to $4,000. This so-called “wild card” exemption can be combined with the $1,000 personal exemption to cover the entire equity in the family car.
Beware of waivers
Many credit agreements that have been drafted by creditors frequently contain clauses in which the debtor agrees to waive any applicable exemptions. The legal effect of these provisions has not received a definitive ruling as to enforceability from the Florida Supreme Court.
Losing the homestead exemption often occurs when a creditor has the debtor agree to transfer the home to a limited liability company (LLC) upon default. Florida courts have ruled that LLCs cannot take advantage of the homestead exemption. The sale of a house does not cause the loss of the exemption, but the misapplication of the sale proceeds can result in creditors being allowed to seize the house and sell it.