Opinion ID: 2542857
Heading Depth: 2
Heading Rank: 3

Heading: The Conflict in the Bankruptcy Courts

Text: Under section 222.25(4), the $4000 personal property exemption is available to any debtor who does not claim or receive the benefits of the article X homestead exemption. Since this statutory exemption became effective in 2007, the bankruptcy courts have struggled with its application as evidenced by the many cases exhaustively outlining the conflicts that have arisen over the meaning of the statute. See, e.g., In re Abbott, 408 B.R. 903, 909 (Bankr.S.D.Fla.2009); In re Hernandez, 21 Fla. L. Weekly Fed. B299, B300, 2008 WL 1711528 (Bankr.S.D.Fla. Apr. 10, 2008); In re Magelitz, 386 B.R. 879, 880-81 (Bankr.N.D.Fla.2008). The nub of the problem is thatas evidenced by the foregoing discussionunder Florida law the homestead exemption does not have to be claimed to be effective against creditors. The bankruptcy courts have differed on the role that this aspect of Florida law plays in bankruptcy proceedings. As a result, the bankruptcy courts have expressed disparate views on whether and how a debtor with a Florida homestead is entitled to the section 222.25(4) personal property exemption. Two decisions well illustrate the differing approaches to this problem.
In Magelitz, the debtor filed a voluntary petition for bankruptcy, and his Florida homestead automatically became property of the bankruptcy estate. 386 B.R. at 883; see 11 U.S.C. § 541 (2006). The debtor did not, however, claim the homestead exemption to remove the property from the bankruptcy estate. Instead, he claimed the section 222.25(4) personal property exemption. In re Magelitz, 386 B.R. at 881. When the trustee objected to the debtor's claim of the personal property exemption, the debtor argued that by not claiming his home as exempt, he did not receive the benefits of the article X exemption and was thus eligible for the section 222.25(4) exemption. Id. at 880. After reviewing Florida case law on the article X homestead exemption, the bankruptcy judge concluded that  [s]ince the Debtor in this case owns the home, lives in it, and intends to continue to reside there, the property has homestead status under Florida law and therefore receives constitutional protection from creditors regardless of the Debtor's failure to claim the homestead exemption. In re Magelitz, 386 B.R. at 883 (emphasis added). The court discounted the debtor's decision in bankruptcy not to exempt an asset from administration by the trustee, concluding that in cases in which an asset has no equity the trustee typically abandons the property to the debtor. Id. Thus, the court concluded that the debtor's failure to claim the homestead exemption in bankruptcy had no effect on the debtor's receipt of the benefits under the article X exemption. The court reasoned as follows: Before the Debtor filed his bankruptcy petition, creditors were prevented from executing or obtaining judgment liens against his homestead by Art. X, § 4, Fla. Const. Now that the petition has been filed, the creditors are stayed from taking such action by 11 U.S.C. § 362, and since a debtor's exemptions in bankruptcy are determined as of the date of the filing of the petition, 11 U.S.C. § 522(b)(3)(A); In re Peterson, 897 F.2d 935, 937 (8th Cir.1990), a debtor who owns property that has the status of homestead on the petition date is entitled to assert the constitutional homestead exemption in the bankruptcy case. Then, after the debtor is discharged, in spite of the fact that the homestead was not claimed as exempt on Schedule C, post-petition creditors would be [sic] not be able to pursue the homestead because of the protection afforded by the self-executing constitutional homestead exemption provision. Thus, by retaining the home, the debtor effectively receives the benefits of the homestead exemption. If the Debtor retains possession of the homestead while also claiming the additional wildcard personal property exemption, he would be able to shield the home from creditors under Art. X, § 4, Fla. Const. and protect additional personal property under Fla. Stat. § 222.25(4) at the same time. The Florida Legislature did not intend this resulta debtor cannot keep a home and also receive the enhanced personal property exemption under Fla. Stat. § 222.25(4). Id. at 883-84 (emphasis added). The court then ruled that the debtor received the benefit of the homestead exemption by staying in the home and could not claim the statutory exemption. Accordingly, the bankruptcy court held that in order for a debtor who has an interest in a homestead to claim the $4,000 personal property exemption under Fla. Stat. § 222.25(4), the debtor must (1) not claim the property as exempt, and (2) timely and properly show a clear and unambiguous intent to abandon the property. Id. at 884; see In re Gatto, 380 B.R. 88, 95 (Bankr.M.D.Fla.2007) (Because the Debtors did not claim their homes as exempt, and because they are surrendering their respective homes, they will receive no benefit of the homestead exemption under section 4, article X of the Florida Constitution. As a result, they are entitled to the Statutory Personal Property Exemption provided for by section 222.25(4), Florida Statutes.). Under the reasoning in Magelitz, the debtor's election not to claim the homestead as exempt from administration by the bankruptcy trustee had no effect on the debtor's eligibility to claim the statutory personal property exemption.
About six months after Magelitz issued, a different bankruptcy judge also addressed the problem of applying section 222.25(4) in light of Florida's history regarding the article X homestead exemption. In re Bennett, 395 B.R. 781, 784 (Bankr.M.D.Fla.2008). That court held that in federal bankruptcy proceedings a debtor may cease to receive the benefits of the article X homestead exemption without abandoning the real property. In Bennett, a consolidated case, none of the debtors claimed the homestead exemption. 395 B.R. at 784. Further, although several debtors indicated an intent to abandon their homestead, others did not. Id. After reviewing Florida law, the court acknowledgedas had other bankruptcy courtsthat there is little that a homeowner can do under Florida law to lose the protection of homestead [under article X]. Id. at 789 (emphasis added) (citing Magelitz ). The court, however, determined that a debtor in bankruptcy who continues to occupy homestead property may nonetheless cease to receive the benefits of the exemption. As some courts have noted, it is not possible under Florida law to stop receiving the benefits of the Homestead Exemption without abandonment or alienation. If all who could claim the exemption were to automatically receive the benefits of the Homestead Exemption in the context of a bankruptcy, then the decisions in Magelitz, Franzese [383 B.R. 197 (Bankr.M.D.Fla.2008)] and Morales [381 B.R. 917 (Bankr.S.D.Fla. 2008)] would be persuasive in holding that mere eligibility is sufficient and the language of the Statutory Exemption provision would be largely unnecessary. However, it is clear to this Court that a debtor in bankruptcy may cease to receive the benefits of the Homestead Exemption regardless of whether that protection could cease under the operation of Florida law alone. Pursuant to § 522(b)(1) of the Bankruptcy Code, an individual debtor may exempt from property of the estate various items or amounts specified under either the federal or state scheme of exemptions. The term may indicates that the debtor is not required to claim exemptions. If the debtor does not choose to exempt the homestead under the Florida Homestead Exemption, the real property remains property of the estate under § 541 of the Bankruptcy Code and is subject to administration by the trustee. As a non-exempt asset, any equity left in the property after the secured claims have been satisfied could be used to satisfy the claims of unsecured creditors. In that situation, a debtor is not receiving the benefits of the Homestead Exemption's protection of the homestead from forced judicial sale. . . . [I]t is this Court's conclusion that debtors who do not affirmatively exempt their homestead under § 522(b)(1) and the Homestead Exemption, but instead leave it available for administration by the Chapter 7 trustee, neither have claimed nor received the benefits of the Homestead Exemption found in Article X of the Florida Constitution. It is important to note that the Chapter 7 trustee need not actually administer the homestead for it to lose the protection of the Article X Homestead Exemption. That the homestead would not be protected were the trustee to decide to administer it is sufficient, because this means that the protection afforded by the Homestead Exemption has ceased. In re Bennett, 395 B.R. at 789-90 (citations omitted) (emphases added). Both the Magelitz and the Bennett courts agree that under Florida law the article X homestead exemption is effective against creditors in all but the three express instances described in the Florida Constitution and is lost only through abandonment of the homestead. On the basic issue of the effect this has in bankruptcy proceedings, however, the courts have arrived at opposite conclusions. For the court in Magelitz, the homestead debtor in bankruptcy cannot claim the section 222.25(4) exemption absent abandonment of the homestead property. The court in Bennett, however, concluded that bankruptcy is different. Failure to claim a homestead exempt in bankruptcy proceedings necessarily makes the homestead subject to administration for the benefit of creditors. Thus, under Bennett, absent other factors not relevant here, a debtor with a homestead is eligible to claim the section 222.25(4) personal property exemption without abandoning the homestead property.