Osborne v. Dumoulin, continued: The $4,000 personal property exemption(and trustees who hate it)

The Florida Supreme Court held that a debtor could own the homestead and still claim the new $4,000 personal property exemption if the debtor did not claim the property exempt in the bankruptcy petition. Osborne v. Dumoulin, 35 So. 3d 577 (2011). There was no requirement that the debtor had to state an intention to surrender the property to the lender. However, the court did find that the bankruptcy trustee could administer the debtor’s property. So bankruptcy trustees are still trying to threaten debtors that they will take their home or collect rent if they try to exercise the $4,000 personal property exemption($8,000 for husband and wife).

Trustees would have the right to sell the property. In one case that was appealed, the United States District Court affirmed the bankruptcy court order that the trustee could not force the debtor to vacate so that the trustee could try and sell. Iuliano v Brook, Trustee, 2011 U.S. Dist Lexis 47136(D.Ct. M.D. FL April 29, 2011). The court recognized that in that case there was no equity in the property and that it would be meaningless for the trustee to try to administer the property. The district court opinion was entered after the Osborne decision. (Note that the court recognized that the trustee could try to sell with the debtor still in possession, though in this case there was no equity.)

But the right to try and sell the residence remains with the trustee, and I have heard that at least one trustee is trying to short sell properties to an investor who will then demand rent from a tenant. Also, trustees have threatened to collect rent from the debtors, but this demand is improper. The trustees are not committing to pay the mortgage with the rent, and if they were, then unsecured creditors are not benefitting. The role of the chapter 7 trustee is to collect for unsecured creditors.

This issue will continue to be a problem, especially since most debtors would rather avoid any risk as to their home. The additional $4,000 savings often is not worth that risk. As a Fort Lauderdale bankruptcy attorney, I will discuss with each client how to deal with this exemption issue.

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