Each State has its own State exemptions which protect certain property of the debtor. Florida, as discussed, has numerous State exemptions referencing the homestead, automobile, personal property and other properties or assets.
Such State exemptions may be employed by the debtor in his defense without the need for a bankruptcy filing.
Some States permit the election by the debtor of either the State exemptions or the federal exemptions in claiming property as exempt.
When filing bankruptcy, the debtor is subject to the 730-day rule, which maintains that the appropriate exemptions to apply towards the assets in bankruptcy are determined by the jurisdiction in which the debtor resided 730 days preceding the filing of bankruptcy. Upon determination of the State jurisdiction upon such 730th day, the rule then directs the debtor to determine where he resided primarily for the 180 days preceding the 730 days (before the filing of the bankruptcy petition).
After determining what State’s exemptions to employ, then the debtor must examine whether those exemptions apply only to residents of that State, whether the State permits the use of the federal exemptions, and in the case in which the State exemptions are the only available exemptions, whether the State’s exemptions have extraterritorial effect.
If the State exemption applies only to residents, then the exemption may not be utilized by the debtor pursuant to the 730-day rule because the debtor no longer “resides” in that State.
States that are “opt-out” States do not permit federal exemptions. They have opted out. In such cases, the debtor may only be able to use the state exemptions of the former state or the debtor’s residence.
In such cases if the property exemption does not have extraterritorial effect, as in the case of most State homestead exemptions then if the debtor has a homestead now in Florida, he will not have the availability of an exemption to protect such Florida homestead.
The plain meaning of the Bankruptcy Code holds that in such instances in which only the State exemption is available, if there is any available exemption that the debtor may claim, then the debtor must use the exemptions of that State.
If there are no available exemptions, however, available to the debtor, in such instances where the former State is an opt-out State, and the totality of the available exemptions have protection only to residents of such former State, then the Code contemplates that the debtor should not be subject to the unavailability of any exemption. In such cases, the proper determination is that the debtor may employ federal exemptions.
The federal bankruptcy exemptions under 11 USC 522 enumerate the various exemptions available to its claimants but also contain provisions that limit the provision in the Florida Constitution for the homestead exemption.
While the Florida homestead exemption has limitations on acreage depending upon the homestead location, either within or without a municipality, there is no restraint upon the equity present in the homestead. Section 522 limits the equity exemption to (in the year 2025) approximately $189,560 dollars per debtor. Joint filers of spouses or married persons who each have a legal interest in the homestead can each claim the $189,000 exemption. If the debtor acquired his interest in the homestead more than 1215 days before the bankruptcy filing, the equity limitation under 522 of the Bankruptcy Code is lifted, and there is no equity limitation, as is provided in the Florida Constitution.
Another restriction on the homestead exemption under Section 522 is the provision that if a debtor transfers a non-exempt asset into a residential property within ten years before the filing of the bankruptcy, with fraudulent intent, the value of the debtor’s exemption of the homestead property shall be reduced by the amount fraudulently transferred.
Finally, on the issue of bankruptcy, there is the contemplation that bankruptcy, even with such limitations, can be an important estate planning and financial management tool. A successful Chapter 7 or Chapter 13 bankruptcy may give dramatic relief to a debtor overconsumed with debt and, as its generally stated intention, the opportunity for a fresh start.