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Homestead and Bankruptcy

Author johnbsims3
Admin Male

#1 | Posted: 29 Mar 2012 18:07 
Courts have uniformly held that the purpose of Florida's homestead exemption law See Homestead law is to protect debtors and their dependents from destitution even in the face of valid creditors' claims.

Further, the laws governing the homestead exemption have been liberally construed to achieve these purposes. However, courts are also uniform in holding that Florida's generous homestead exemption laws should not become "instruments of fraud" to deprive creditors of funds to which they would otherwise be entitled. The Englander bankruptcy court found, and the 11th Circuit Court of Appeals agreed, that the debtors acted in "bad faith" and "with a clear intent to defraud their creditors," as evidenced by their conduct concerning the multiple misleading pleadings filed and the attempted gerrymandering.

The bankruptcy court held that the slow process of disclosure and the fact that the debtors always attempted to disguise the exact size of the tract of land on which their homestead was located was done intentionally. Bankruptcy Judge Dickinson drew from an old saying and stated, "[T]he debtors have . . . not protected their castle with the moat of their homestead exemption but are instead attempting to illegally deprive their creditors of the value of the non-exempt tract by constructing siege lines around it." The bankruptcy court held that Florida's homestead exemption, while generous, does not permit the designation of a homestead on a larger tract of land when that designation will render the non-exempt portion valueless or eliminate any reasonable access to the non-exempt property. Finally, the bankruptcy court stated that "the selection by the debtors is not a reasonable exercise of their homestead rights as the shape chosen prevents all access, other than by helicopter, to the remaining parcel." Therefore, the bankruptcy court held the homestead designation was improper, and ordered a sale of the homestead property and an allocation of the proceeds.

The 11th Circuit Court of Appeals relied on O'Brien v. Heggen, 705 F.2d 1001, 1004 (8th Cir. 1983), which holds that if the property cannot be practically or legally divided, then a sale of the entire parcel with an accompanying apportionment of the proceeds is an "eminently fair resolution."

The court held that the debtors would receive the value of their homestead land in cash, which will retain its exempt status. The debtors could then repurchase a homestead or bid on their exemption at a sale, thereby fulfilling the purpose of the Florida homestead exemption law by providing shelter for debtors and their families. The creditors will also benefit as the trustee and will recover the proceeds of the nonexempt tract for distribution to creditors under the Bankruptcy Code.

The debtors had argued that the literal language of the Florida Constitution prohibited a sale of the homestead pursuant to Art. X, [sections] 4(a)(1) of the Florida Constitution. The 11th Circuit Court of Appeals held that such a strict construction has not been applied, and in the instant case a judicial sale was necessary to enforce the homestead limitation of the Florida Constitution itself.

The bankruptcy court stated that "the homestead exemption cannot be used, even in conjunction with zoning laws, to unjustly impose a detriment upon the rights of creditors."

In re Englander, 95 F.3d 1028, 1029 (11th Cir. 1996)

Bankruptcy Florida Homestead Services - Florida Homestead Exemption Act Forum / Bankruptcy /
Homestead and Bankruptcy
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