Homestead and “Wildcard” Exemptions in Bankruptcy

Part III

In the last two weeks we discussed some basic bankruptcy concepts as well as Florida’s Homestead and Personal Property exemptions. With any luck, this week’s discussion will hopefully tie the last two blogs together and shed some light on the proverbial “big picture.” That being said, I urge you to review my previous two blogs beforehand. Also, if time permits, my “Homestead” blogs will help clarify this as well.  

wild card property guidingIf you recall, all of a debtor’s asset (everything they own) are part of the bankruptcy estate upon their filing for bankruptcy. The trustee now has the authority to administer the bankruptcy estate and sell off your property to pay your creditors. Remember though, that the property that the trustee is usually selling is unsecured (no mortgage or car note). In contrast, if the property is secured by a security instrument (mortgage) there must be some equity (value above what is owed to the creditor/lender) in order for the trustee and creditors to obtain any benefit from the sale.

Example: If you own your home and are carrying a $200K mortgage, the home’s fair market value (FMV) needs to be greater than $200K in order for there to be any equity, which is what the Trustee is after. This is because it is secured and the Trustee must pay off your creditor/lender from the proceeds of the sale before they can realize any actual proceeds for your unsecured creditors.  In this situation, if the home is valued less than or equal to the amount owed to your mortgage lender, the Trustee will typically abandon the property, which means the debtor would get to keep it.

In light of the Homestead and “Wildcard” Exemptions discussed in my previous blog, this means that it often permits a debtor in bankruptcy to keep an additional $4,000 in personal property. Florida Statute §222.25.

This $4,000 “Wildcard” Exemption is only applicable if a debtor in bankruptcy neither “claims” nor “receives the benefits” of the Florida Constitutional Homestead protections against forced sale and levy.

So, if you owe more than your home is worth, you have no equity in your home. Thus, you need not “claim” your Homestead exemption in your Bankruptcy petition. But, the question remains, do you “receive the benefits” of the Homestead exemption?

That was the question the Florida Supreme Court addressed in 2011. Until then, Florida bankruptcy courts were conflicted in their application of the interplay between the Homestead and “Wildcard” Exemptions. The Florida Supreme Court held that, “Where a debtor in bankruptcy elects not to claim the constitutional homestead exemption and the trustee’s administration of the bankruptcy estate is not otherwise obstructed by the existence of the homestead exemption, the debtor does not receive the benefits of the homestead exemption and may claim the statutory personal property exemption of $4000.” Osbourne v. Dumoulin, 55 So.3d 577 (2011). Emphasis added.

To clarify, just because the Trustee will likely abandon the home due to insufficient equity, does not mean that the debtor is “receiving the benefits” of the Constitutional Homestead protection. The debtor did not claim it in their bankruptcy petition as exempt, nor did they “receive it benefits.” The Trustee just decided that it wasn’t worth it and abandoned the home. Think about it, once the property which has been occupied by the debtor as their homestead becomes subject to administration by the trustee, the debtor has lost the benefits of the Homestead Exemption and is entitled to the increased $4,000 “Wildcard” exemption. Whether or not the Trustee administers the home is irrelevant and not the debtors problem.

Additionally, the timing of whether the debtor is “receiving the benefits” of the Homestead exemption is limited to the moment they filed for bankruptcy. The fact that they may have “received the benefits” in the past, or the fact that they can still “receive the benefits of the Homestead Exemption” in the future is also irrelevant. In re Hernandez, 21 Fla. L. Weekly Fed. at B300.

A warning to my readers, just because you didn’t claim your Homestead Exemption in your bankruptcy petition, does not automatically mean you have not received the benefits of it. “This can only be determined on a case-by-case basis, after a fact-intensive inquiry.” In re Bennett, 395 B.R. at 790.  A common example would be where you receive the $4,000 “Wildcard” Exemption because you didn’t claim your homestead as exempt, but your non-filing spouse can still prevent it from being administered by the Trustee under her own homestead exemption. In this situation, you are receiving the benefits and are not entitled to the extra $4,000 “Wildcard” exemption.

In summary, if under the facts of the case, the Homestead Exemption does not prevent the trustee from administering the estate, then the debtor is not in fact “receiving the benefits” of the Homestead Exemption and is eligible to claim the additional $4,000 “Wildcard” exemption.

This is a generalized discussion on Ch.7 Bankruptcy’s. It is not intended for any particular set of facts and should not be relied upon as such. By no means does this blog create an attorney-client relationship or attorney-client privilege between the Attorney and the readers. The law frequently changes as new cases are published regularly. Anything relied upon in this or any blog is done so at the readers own risk.

If you are considering a bankruptcy in Southwest Florida, or are interested in discussing your options, you should speak with a licensed Florida attorney. If you would like schedule a free consultation, or have any questions, comments, or suggestions on upcoming topics, please comment below or email

The Guirguis Law Firm, PLLC
1423 S.E. 16th Place, STE 204
Cape Coral, Florida 33990
239.573.9939 Telephone
239.603.9939 Facsimile

Posted on August 29, 2012, in Legal and tagged , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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