Debtors in bankruptcy proceedings who desire to sell assets of significant value, whether those assets are considered exempt or not exempt, should obtain appropriate permission from the bankruptcy court before doing so. This advice includes the sale of the homestead in the State of Florida. If you contemplate the sale of homestead property, while in bankruptcy, consult with the bankruptcy attorney first to determine the property procedures and the ramifications of such sale.
The first consideration in the sale of homestead property while in bankruptcy is whether the homestead property is in fact, exempt. While the Florida Constitution contains few limitations of the homestead exemption under Florida Law, other than the acreage limitations of ½ acre for an owner of property located within a municipality and 160 acres for property located outside of a given municipality, federal bankruptcy law contains numerous limitations on the homestead exemption provided by the State of Florida. Bankruptcy law provides a limit to the amount of equity an owner of a homestead may claim in the amount of $170,350 for cases filed after April 1, 2019, if the debtor in bankruptcy owned the home less than 1215 days. The exemption under federal bankruptcy law may also be limited under 28 USC 522 if the debtor committed certain forms of bankruptcy fraud or fraudulent transfers.
Even if the homestead property is not fully exempt, the debtor may sell such property but should be aware of the effects of such sale before proceeding.
Before one sells homestead property while under the jurisdiction of the bankruptcy court, the bankruptcy attorney should file a motion to approve the sale of the homestead property. The bankruptcy attorney should also consult with the assigned bankruptcy trustee to determine his or her position on the sale of such property.
Although the property may be fully exempt as the homestead of the debtor, the trustee may take the position that such proceeds constitute additional income that may be delivered to pay in particular, the unsecured creditors of the debtor.
If advisable to proceed, the bankruptcy attorney should file a motion to approve the sale of the homestead property. A hearing will be held before the bankruptcy judge.
The bankruptcy court or judge will generally take the position that the proceeds of the sale of the homestead property shall retain their homestead quality, provided the debtor uses such proceeds within a reasonable period towards the purchase of another homestead. A reasonable period may be defined as possibly four to six months, or longer, depending upon the facts present in the debtor or debtors’ case. Further, the purchase of a homestead generally contemplates that the debtor or debtors will purchase a home in the State of Florida.
After the bankruptcy court enters an order approving the sale of the homestead property, the debtor or debtors may then sell the homestead. Any proceeds from the sale of the homestead should be placed in a separate account, that should be labeled as a homestead account, and such monies should not be commingled with monies from other sources.
Picture Credit: Crello