Many Orlando homeowners who consult with us are concerned that filing bankruptcy will leave them homeless. This is not true. Bankruptcy can be a very useful tool to protect your interest in a home and avoid losing it in a foreclosure action. An affordable bankruptcy lawyer can be invaluable in understanding this process.
Keeping and protecting your home while having your debts discharged inbankruptcy can can be done in different ways, depending upon the type of bankruptcy proceeding that is suitable for your particular situation.
What every Orlando homeowner should know is that the equity in your home (the fair market value minus the mortgage debt) is absolutely protected from claims of creditors. This means that no creditor can force the sale of your home to satisfy a debt. Similarly, a bankruptcy court cannot force you to sell the house to satisfy creditors’ claims. However, mortgages are an exception to this rule, because you consented to that lien on your property when your borrowed the money to buy your home. So, the mortgage lender does have the right to foreclose if you default on the mortgage by failing to make a payment on time.
If you are not in default on your mortgage payments, and you have enough income to continue making the mortgage payments, an experienced bankruptcy attorney can help you discharge your other debts in a chapter 7 bankruptcy proceeding. Because of the intricacies of mortgage law, the mortgage debt is actually discharged, but the mortgage lien remains on your home. Generally, if you continue to make timely payments on your mortgage loan, you will keep the house after the bankruptcy.
Some homeowners going through a chapter 7 bankruptcy proceeding may be asked to sign a re-affirmation agreement, in which they “re-affirm” their obligation to pay the mortgage loan. Whether to sign such an affirmation agreement will be the subject of another posting, and it involves balancing of risks and benefits that must be considered on a case by case basis, based on the advice of an experienced bankruptcy lawyer.
If you have missed payments and you are in default on your mortgage, you may still save your home in a chapter 13 bankruptcy proceeding. Chapter 13 allows homeowners to cure any defaults in their mortgage and propose a payment plan for catching up on missed payments. To do this you must show that you have sufficient income to make your monthly mortgage payments, plus an additional amount for the missed payments. You have three to five years to make these payments to cure the default.
Orlando homeowners can save their homes in a chapter 13 proceeding even if they have already been sued for foreclosure. However, a petition should be filed before a scheduled foreclosure sale. After that time, it may be too late. I am best able to help those clients who consult with me early, so that we have time to prepare a plan for saving their home.
For Florida homeowners, there are some legal protections you can can take advantage of.
The Homestead Exemption
Under Florida state law, a homestead exemption not only saves residents thousands in property taxes, but specifically protects the investment in a person’s property when someone files a bankruptcy in Florida. Experienced Florida bankruptcy attorneys understand that the homestead exemption is a significant help to many of their clients, and something that should be considered in the context of a bankruptcy decision.
The Florida homestead exemption can be valuable for both Chapter 7 and Chapter 13 bankruptcies; with some exceptions. First, the homeowner will need to have lived in Florida for two years to qualify for any of the Florida bankrptcy exemptions, including the homestead exemption; if someone moves to Florida and tries to file a bankruptcy prior to the two-year period the courts will use the exemptions from the state that resident lived in for the 180 days prior to the two years. This is true of all the bankruptcy exemptions available under Florida law.
However, if the debtor has lived in Florida and owned a home for 40 months or more, the Florida homestead exemption can be used, and it can make the difference between a successful Chapter 13 bankruptcy and the need to choose an alternative process. In a Chapter 13, the homestead exemption will allow a homeowner to keep the residence, however, unsecured creditors will get at least the amount they would have if a Chapter 7 was filed.
In a Chapter 7 bankruptcy if you claim the homestead exemption, you will only be able to get an extra $1000 in personal property and an extra $1000 in equity towards your car. If you don’t claim the homestead exemption the limits are up to $4000. And if the 40-month rule has not been met, the homestead exemption is capped at $160,375 by federal law.
Social Security benefits, pension plans, retirement accounts, disability benefits, veteran’s benefits, unemployment benefits, alimony, child support and similar benefits are completely exempt since they are needed to support the debtor and their dependents. Also, if the debtor is the head of the household take home pay of $750 is exempt. Income considered disposable above $750 cannot be garnished without written consent of the debtor.
If the debtor is not the head of a household, wages can’t be garnished by more than that allowed by the federal Consumer Credit Protection Act. The Act says the garnishment is the lesser of 25 percent of the take home pay or the amount by which the take home pay exceeds 30 times the federal minimum wage.
Eligibility Requirements for the Homestead Exemption
Although the homestead exemption generally allows for protecting the whole amount of a property’s value, there are some restrictions. One is in acreage restriction. It’s important for property owners to know about the vast difference between protecting a property “in a city” or other higher-population area, where the maximum size for a property is one half acre, and one in a rural area, where properties up to 160 acres can apply. Most importantly, the home must be the primary residence of the debtor; this means that the home must be occupied by the debtor, and cannot be a second home, or investment home. The debtor has to be a real person, the home cannot be owned by a limited liability company (an LLC) or an irrevocable trust.
There’s also a time requirement. In order to use the exemption in bankrptcy, those applying for the homestead exemption in Florida need to show that they have owned the property for a certain number of days,1215 (roughly equal to 40 months) prior to filing the bankruptcy. There is no dollar limit on the value of the homestead exemption unless the debtor has not owned the home for at least 40 months prior to filing for bankruptcy. In this case, the limit is $146,450 in equity. That’s still much higher than the maximum for the federal homestead exemption in bankruptcy, which is around $22,975 for a single filer. (Both state and federal caps can be doubled for joint bankruptcy filers).
Also, although a homestead exemption can be claimed by a family member in many cases, the applicant will generally need to show that the property involved is his or her residence.
Mobile homes are not included in the homestead exemption however, under Florida Statute 222.05, they are protected from creditors judgements.
Benefits of Florida Homestead Exemption
Simply put, Florida’s homestead exemption is a powerful way to ensure that even those who may declare certain kinds of bankruptcy will not lose their homes due to creditor activity. A skilled Orlando bankruptcy lawyer points out that article 10 section 4 of the Florida state constitution also deals with property protections and the inability of creditors to force a sale of a property, or put a lien on a property, outside of bankruptcy operations.
What Does the Florida Homestead Exemption Mean for You?
Every bankruptcy process is different and needs to be evaluated by a professional bankruptcy lawyer. If you are considering a Chapter 13 or Chapter 7 bankruptcy in the state of Florida, contact the attorneys at the Badgley Law Group at (407) 781-0420 so that they can review your case and figure out whether the homestead exemption or other protections will apply. Filing a bankruptcy can be a daunting experience, but for most people one that will save them from financial ruin and help them start a new chapter.
If you need to explore bankruptcy, let a professional, experienced law firm help you to shield your assets and your home, from creditors, so that you can emerge from bankruptcy with your finances in the best condition possible and with your home. Get peace of mind by working with Florida bankruptcy lawyers in Orlando who understand how these cases work their way through local courts, how to approach every stage of a bankruptcy, and how to predict legal outcomes and how you will be affected. You aren’t alone; an affordable bankruptcy lawyer can help. Contact the Badgley Law Firm today.