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October 15, 2009
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High standard needed to get Orchestrator enhancement
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Light Most Favorable to the State is not the Law
"Unlimited" Homestead Exemptions: A Protection or a Potential Pitfall
June 10, 2009
Topic: Bankruptcy
The recent holding in Parks v. Anderson (2009 WL 1407786, D. Kan 2009) has the potential to send shockwaves through states which allow unlimited homestead exemptions. The federal code 11 U.S.C. § 522 provides for specific assets which are exempt in bankruptcy; however, leeway is also given to the states to apply additional exemptions. In Florida, for example, one's homestead exemption in their primary residence is unlimited rather than capped as in the federal code. In order to prevent pending bankruptcy debtors from using such states as a safe haven §522(p) caps the homestead at $125,000 for any interest acquired within a 1,215 day time period in any and all states.
The critical aspect of the Parks ruling was their interpretation of the term "interest" in section 522's provision for "any amount of interest that was acquired by the debtor during the 1215-day period." Previously, the legal consensus was that this provision applied to acquired interest in title only. And as a result, many attorneys and financial planners have long advised clients to move as many non-exempt assets into their homestead as legally possible. However, the Parks court determined that § 522 applies to any equity acquired by the debtor. The result of this is that any equity rolled into the homestead from non-exempt assets will not be protected once the homestead aggregate is above $125,000. Although this case took place in Kansas, the court cited several Florida cases (including one in the 1st DCA) as authority in making their determination, and so, this interpretation will almost inevitably find its way to Florida jurisdictions in the very near future.
There is a potential benefit here as well, as the converse side of this issue is that debtors - even those who are in severe debt with their primary residence - have the ability to protect non-exempt assets by rolling them into their homestead up to the $125,000 threshold. By appraising the value of a primary residence this could potentially uncover a valid means of protecting non-exempt assets. This ruling reveals the complex nature of bankruptcy law and highlights how critical it is to have guidance from experienced attorneys who understand the many nuances and overlays in both federal and state law. Many paper mill bankruptcy firms do not take the time to fully work with the individual client and customize their bankruptcy to make it entirely in their best interest. At Arnold & New we have experienced bankruptcy attorneys ready to meet with you and create a customized plan to best protect your assets. Please contact us directly for a free consultation.
