When homeowners are in financial distress and begin to explore their debt relief options, they might become fearful that they will have to give up their homes. They might want to file for Chapter 7 bankruptcy, but are not sure how their homes will be affected. Fortunately, Florida has one of the highest homestead exemptions in the country, and in many cases, filers will not be required to liquidate what is ordinarily their largest asset.
A “homestead” exemption makes a certain amount of a home’s value unreachable by creditors. Many states put a cap on this amount, but here in Florida, there is no maximum value. That means that most people are able to protect the entire value of their homes when they file for bankruptcy. As long as the property does not sit on more than half an acre of land in an urban area or 160 acres in rural areas, the home could be exempt.
However, there are limitations to the exemption. The lender, the builder (and any contractors used) and anyone who had a lien on the property prior to it being declared a homestead — along with taxing authorities — may still have the right to force the sale of home. The federal government could step in and take the home for payment of taxes, but this not normally done. If the home is sold or foreclosed while a lien is on file, the IRS will then step in to claim any amounts owed.
Everyone who files for Chapter 7 bankruptcy is allowed a certain amount of property to be exempt from liquidation. For those who own homes, the homestead exemption could prevent them from being sold. However, both homestead and bankruptcy filings need to be done properly in order to provide these protections. Therefore, it would be beneficial to consult with an attorney prior to filing any paperwork to help ensure that an error will not result in the loss of the home or dismissal of the bankruptcy.
Source: FindLaw, “Florida Homestead Laws“, Accessed on Sept. 12, 2016