Florida Bankruptcy Exemptions

When an IRA owner dies and designates an heir, other than his spouse, as the beneficiary of his IRA the beneficiary acquires an “inherited IRA” from the decedent. Federal bankruptcy exemptions protect IRAs up to approximately $1 million. Some bankruptcy trustees have challenged the exemption of IRAs which the debtor inherited from a parent.

There has been significant bankruptcy litigation over whether or not a debtor loses his Florida  homestead exemption if he uses his home to conduct business. Courts are divided; the law differs depending upon the district where the debtor files bankruptcy.

A married man used exempt money from his retirement funds to pay off a $400,000 mortgage on his homestead. Within three years thereafter, the same man filed Chapter 7 bankruptcy. The Chapter 7 trustee is challenging the man’s homestead exemption because he (the debtor) obtained $400,000 equity within 1215 days of filing bankruptcy. Can the man’s non-filing spouse exert her homestead interest to save the house?

The general rule is that a debtor may exempt proceeds from an exempt asset held in the debtor’s bank account so long as he can trace the funds to the exempt asset. Most bankruptcy courts interpret Florida’s asset exemptions to apply to the exempt assets and its proceeds derived from the asset.

There are several bankruptcy court decisions which considered the debtor’s homestead exemption when the debtor used part of the homestead property to produce income. The general rule is that commercial uses on a homestead property situated within a municipality will disqualify all or part of homestead exemption, but income producing activity does not disqualify homesteads located in the county.