Florida Supreme Court Rules on Wildcard Exemption

Some long awaited clarity was provided by the Florida Supreme Court yesterday, to bankruptcy attorneys and their clients, on an issue that has divided Bankruptcy Courts in Florida since 2007.

First, a bit of history.

In 2007 the Florida Legislature amended Florida’s exemption law to allowing a debtor filing bankruptcy who does not “receive the benefits” of Florida’s homestead exemption, to claim up to $4,000 of personal property exempt from the Bankruptcy Estate.

This wildcard exemption proved to be especially helpful to debtors who were tying to keep their vehicle from being taken by the Chapter 7 Trustee. Before this law was enacted, if the debtor had more than $1,000 of equity in a car, the debtor could lose that car to the bankruptcty estate.

This is a very simple statute to interpret when a debtor does not own a home and is renting a place at the time he or she files bankruptcy, for example.  Clearly, this particualr debtor is not “receiving the benefits” of Florida’s homestead exemption and is entitled to claim the wildcard exemption.

Ah, but the legal world is not always that simple, is it?

What if, for example, a debtor owns a home at the time of filing bankruptcy in Florida, decides to surrender the home back to the lender and does not claim the homestead exemption in his bankruptcy petition, but remains living in the home?  Does this debtor get to claim the wildcard exemption and get the extra $4,000 protection of personal property or is he “receiving the benefits” of Florida’s homesetad exemption because he has not “abandoned” the property and is still living in it at the time of filing bankruptcy?

Now, thanks to the Florida Supreme Court’s ruling in Osborne v. Dumoulin (In re Dumoulin), handed down yesterday, we know that the debtor in the above described situation can rightfully claim Florida’s wildcard exemption and use the extra $4,000 to protect personal property from being taken by a Trustee in a chapter 7 bankruptcy case.

Specifically, the Court held that

“where a debtor in bankruptcy elects not to claim the article X, section 4, homestead exemption and

the trustee’s administration of the bankruptcy estate is not otherwise obstructed by

the existence of the homestead exemption, the debtor does not receive the benefits

of the homestead exemption and may claim the section 222.25(4) personal

property exemption of $4000.”

So, good news for debtors filing bankruptcy who want to use the “safety net” strategy I have written about in past blogs.

Essentially, file bankruptcy, surrender your home that is underwater, maximize your exemptions and keep as much of your property as you can by  rightfully claiming Florida’s wildcard exemption, continue to live in the home rent free until the foreclosure process completes (which can be over a year), and build a cash fund you can use as a “safety net” so you don’t have to rely on credit cards for moving expenses or “emergencies”.