What Property Can I Keep?
People who are considering bankruptcy are almost always most interested in knowing which debts they can discharge and what property they keep. These issues are governed by both federal and state statutes, and each state has its own unique laws. So, the first step is to figure out which state’s laws apply to you. The state where you were domiciled for 730 days (two years) immediately preceding the date you file for bankruptcy dictate which state’s law applies. If you resided in more than one state during that time, the court will apply the law of the state where you lived during the 180 days preceding the two-year period, or the state where you lived the longest during that 180-day period.
The individual states can use all, some, or none of the exemption provisions set out in the United States Code. Florida has enacted its own exemptions in addition to keeping just a few of the federal provisions. In some cases, the Florida exemptions are much more favorable for bankruptcy filers. Florida’s exemption laws allow you to protect property including:
- Your “homestead,” up to 160 acres of contiguous land if located outside a municipality, or up to one-half acre of contiguous land within a municipality. However, your homestead is not exempt from claims of creditors for taxes and assessments, debts incurred for the purchase, improvement or repair of the homestead, or for debts incurred for the house, field or other labor performed on the property. A mobile home or modular home may be a homestead. The amount is unlimited, however, if you acquired a homestead within 1215 days before filing for bankruptcy, except to the extent of funds used to secure new homestead from the sale of a prior homestead in the same state, your homestead exemption is limited by a varying amount. (As of February 12, 2019, that amount is $170,350.)
- Personal property to the value of $1,000. However, up to $4,000 if you do not claim a homestead exemption.
- A single motor vehicle not to exceed $1,000 in value.
- Professionally prescribed health aids for you or your dependents.
- “Earned income” tax refund or credit as defined by section 32 of the Internal Revenue Code of 1986.
- Wages, salary, commission or bonus, up to $750 per week, for "head of family," are exempt from garnishment or attachment, unless you agree with a creditor otherwise. Garnishment for “head of family” or anyone else, can never be more than the limits set by 15 U.S.C. § 1673, which is a very complicated formula under the Consumer Credit Protection Act. Also, earnings remain exempt for six months after deposited in a bank account, even if commingled with other funds, so long as earnings can be traced and properly identified.
- Life insurance proceeds, unless the policy or assignment provides otherwise.
- Cash surrender value of life insurance and proceeds from an annuity contract for Florida residents are exempt from claims of creditors of the insured or beneficiary of the annuity, unless the policy, assignment or annuity was for the benefit of the creditor.
- If you are a pensioner of the United States, money received by you that pension within the three months preceding an execution, attachment or garnishment process, if, via affidavit, you state the money is necessary for yours or your family’s support.
- Money in a retirement plan in accordance with those plans authorized as exempt from taxation by the Internal Revenue Code under sections 401(a), 403(a), 403(b), 408, 408A, 409, 414, 457(b) or 501(a). You can also exempt these funds if the plan is in substantial compliance with the requirements of those sections or if plan would have been in substantial compliance but for negligent or wrongful conduct of another person. Funds do not cease to be exempt if transferred or rolled‐over as per section 402(c) of the Internal Revenue Code. Also, if you receive funds as an “alternate payee” from one of these plans under a qualified domestic relations order, those funds are also exempt from all claims except those made by the Department of Revenue. Lastly, this section is limited by 11 U.S.C § 522(n) which states the maximum exemption limit for IRA’s under 408 or 408A, shall not exceed a varying amount (as of February 12, 2019 that amount is $1,362,800). 10) Any money you pay into or assets you receive from a validly existing tuition program under section 529 of the Internal Revenue Code of 1986, including Florida’s Prepaid College Trust Fund are exempt from bankruptcy.
- Money paid into or out of assets from a health savings account or medical savings account.
- Money paid into or out of an educational IRA or Coverdell education savings account.
- Money paid into or out of a hurricane savings account. This account must be established by you as an insurance policy holder for your homestead property located in Florida to cover twice the amount of the deductible or other uninsured portion of your coverage for a loss from a hurricane, flood, or other catastrophic windstorm event. Also, the federal government must have enacted legislation that provides for tax‐exempt or tax‐deferred status for these accounts, which to date, it appears they have not.
Also, while Florida has opted out of almost all federally provided exemptions, you can still protect the following:
- social security, unemployment compensation or local public assistance benefit;
- veteran’s benefits; disability, illness or unemployment benefits;
- alimony, support or separate maintenance;
- a payment, to the extent reasonably necessary for yours and any dependent's support, of a stock bonus, pension, profit sharing, annuity or similar contract on account of your illness, disability, death, age or length of service, so long as the plan wasn’t established by an insider who employed you, the payment is on account of your age or length of service, and the plan qualifies under section 401(a), 403(a) and 403(b) or 408 of the Internal Revenue Code. Pursuant to 11 U.S.C. § 522(n), assets in, and earnings from, individual retirement accounts described in section 408 or 408A of the Internal Revenue Code of 1986, other than simple employee pensions under section 408(k) or simple retirement account under section 408(p), cannot exceed a varying amount (as of February 12, 2019 that amount is $1,362,800).
The bankruptcy estate will include any property that is not exempt under Florida or federal law. The trustee in a chapter 7 case can sell all non-exempt property in order to distribute the proceeds to unsecured creditors according to a priority schedule established under the Bankruptcy Code. By entering into a “buy-back” agreement with the trustee, you might be able to keep non-exempt property. If you execute a buy-back agreement, you will make either a lump-sum payment or make monthly installment payments over a period of several months.
Here are some other important points about exemptions. The value of property, exempt or not, is not the amount you paid for it, but what it is worth when your bankruptcy case is filed—the “replacement value.” Especially for furniture and cars, this may be a lot less than what you paid.
You also need to consider only the equity you have in your property. That means you subtract from the replacement value any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you have only $10,000 in protected equity should the lender foreclose on the property. However, as long as you continue to make your payments you almost always can keep the home.
Lastly, while your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of “secured” creditors such as a mortgage-holder or car loan creditor. These secured creditors can take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. You usually must pay the mortgages or liens as you would if you did not file bankruptcy.
“Exemptions” from the estate can be a complicated matter. The Law Offices of Evan M. Rosen will gladly assist and advise you every step of the way on these issues. If you or someone you know is considering filing for bankruptcy, call us today at (754) 400-5150 or contact us online. Let the lawyers and staff at the Law Offices of Evan M. Rosen serve you!