Bankruptcy First, Sell Homestead Later

Timing is everything in bankruptcy.  Bad timing cost one Florida debtor his home. The debtor’s homestead in Florida, with some exceptions, is exempt from creditors.  It is well understood under Florida homestead law including in a Florida bankruptcy that a homeowner may sell the home, retain the proceeds(in a separate bank account), and retain the homestead exemption in the proceeds for a reasonable time to purchase another exempt homestead.

Carpenter v Scott Brown, 2013 US Dist Lexis 112607 (August 9, 2013) affirmed Judge Ray’s decision denying homestead exemption upon the sale.  But the facts of the case must be reviewed.  The debtor had already signed a contract to sell and the closing was scheduled for just after the filing of the bankruptcy petition.  The debtor did reside at the homestead on the date the bankruptcy petition was filed.  The key fact here is that the debtor was moving to Massachusetts to stay with family. The closing and move did take place shortly after the chapter 7 was filed.

The court determined that the homestead had been abandoned as of the date of filing the petition because the debtor did not have the intent to retain the home as the permanent residence, and that the proceeds were also not exempt. The court also noted that the buyer had a right of specific enforcement to require the debtor to close.

(Warning:  I am not discussing the issue of sale of a Florida home and using the proceeds of the home to purchase a homestead in another state which has different homestead protection.  The proceeds are clearly exempt to purchase another Florida homestead)

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