Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A.
800 North Magnolia Avenue, Suite 1500
P.O. Box 2346 (ZIP 32802-2346)
Orlando, FL 32803
DE-CODING THE NEW BANKRUPTCY LAW
The amendments to the Bankruptcy Code just signed into law by President Bush dramatically
reduce the exemptions available in bankruptcy and limit the ability to wipe out debts by filing
bankruptcy. The following is a brief summary of the most significant changes affecting Florida
residents. For a complete explanation and analysis of the law as it applies to specific situations,
we recommend you contact one of our Wealth Preservation and Estate Planning attorneys.
The most significant changes for Florida residents are the new limitations on the ability to use
Florida’s homestead exemption. Under Florida law, a person’s homestead is entitled to complete
exemption from claims (other than mortgages and liens placed on the homestead itself),
regardless of the home’s value or how long you have lived there. Under the new bankruptcy
law, the homestead exemption will be limited to $125,000, unless you have lived in the home for
at least 40 months. If you sell one home and invest the proceeds in another, then you are allowed
to count the time in the old home against the 40-month requirement. The residency requirement
is extended to 10 years if the purchase of the home is considered a fraudulent conveyance,
meaning that the home was purchased with the intent to hinder, delay or defraud creditors.
Moreover, if the debtor has committed securities fraud, a felony or other serious acts, the
homestead exemption is completely eliminated regardless of the period of ownership. If there is
a significant paydown or payoff of a mortgage with non-exempt funds within the 40-month (or
10-year) period, this will likely be deemed a “purchase” of a portion of the homestead and thus
subject to the $125,000 limita