Homeward bound through the wild, wild south: the application of Florida's wild card exemption on homestead property in bankruptcy.

• Author: Haugen, Anna

Once a successful entrepreneur, Debtor Dan has recently fallen on hard times after the promising investors on Shark Tank refused to invest in his business, Wonderful Widgets. (1) Debtor Dan's expectation for his successful financial future tanked, and he quickly saw his bills and debts rising higher than Shark Tank's ratings. Ultimately, Debtor Dan decided to file for bankruptcy. Initially, Debtor Dan planned to file for relief under Ch. 13 of the Bankruptcy Code and claim a wild card exemption on his schedules. However, after an informative meeting with his knowledgeable lawyer, who unfortunately had not had an opportunity to read the 11th Circuit's opinion In re Valone, 784 F.3d 1398 (11th Cir. 2015), Debtor Dan was told that he would not be able to claim the wild card exemption in a Ch. 13 case, even if he did not claim the homestead exemption.

Justifiably confused by this new development, Debtor Dan objected and insisted that his neighbor, Debtor Debbie, filed for bankruptcy, didn't claim her home as exempt, and was able to claim the wild card exemption. Thereafter, Debtor Dan wondered why he could not do the same.

The lawyer quickly replied in fluent legalese that Debtor Debbie most certainly filed for relief under Ch. 7 of the Bankruptcy Code because in Ch. 7 cases the application of the wild card exemption rests on the liquidation process and, thus, differs greatly from Ch. 13 cases in which nonexempt property is retained and treated under a plan. After injecting some other complex terms, followed by more confusing legal lingo, the lawyer finally sensed Debtor Dan's concern and added that this distinction in applicability of the wild card exemption has challenged both lawyers and the courts because it is based on the fundamental difference and purpose of Chs. 7 and 13 of the Bankruptcy Code.

Exemptions under Florida Law

The Bankruptcy Code provides protection for certain assets once an individual debtor becomes involved in the bankruptcy process. Specifically, [section]522(b) of the Bankruptcy Code authorizes individual debtors to exempt property from the bankruptcy estate to shelter it from the reach of the debtor's creditors. Bankruptcy Code exemptions can be chosen in any chapter under which an individual can file--7, 11, 12, or 13. Nevertheless, Congress allowed the states to override the federal bankruptcy exemptions to permit a debtor to take only those exemptions given under the state's exemption laws. (2) That way, the states, by a specific legislative act, can restrict bankruptcy debtors' options to electing exemptions available under state and nonbankruptcy federal law.

Florida, among other states, has opted out of the exemptions available under the Bankruptcy Code in favor of utilizing its own exemptions. (3) In Florida, state law determines which property a debtor may exempt from the bankruptcy estate. (4) For instance, FLA. CONST. art. X, [section] 4 grants Floridians a homestead exemption in an unlimited dollar amount for residential real property that does not exceed one-half acre, if located within a municipality, or 160 acres, if located outside of a municipality. (5) The homestead exemption provides that a person's homestead is exempt from forced sale "so that the homeowner and his or her heirs may live beyond the reach of financial misfortune and the demands of creditors." (6) This legal doctrine was intended to promote the stability and welfare of the state. (7)

In addition, Florida residents are entitled to other exemptions that can be generally found in F.S. [section]222.01 et seq. An exemption of the utmost importance to our friend Debtor Dan is the wild card exemption. The wild card exemption, also known as an enhanced personal property exemption, allows individuals to exempt up to $4,000 in personal property if they do not "claim or receive the benefits of' the homestead exemption. (8) The purpose of the wild card exemption is to give extra personal exemptions to debtors who do not benefit from the homestead protection. (9) The drafters of this statutory exclusion used the phrase "receive the benefits of' to ensure that a debtor who does not affirmatively claim the homestead exemption must not be able to indirectly receive its benefit while claiming the wild card exemption. (10)

Such indirect receipt of the Florida homestead exemption may arise in a joint filing if one spouse claims the wild card exemption while the other spouse claims the homestead exemption. (11) It may also occur if the filing spouse claims only the wild card exemption while the nonfiling spouse retains homestead rights with respect to creditors. In such instances, the retention of the homestead rights by one spouse necessarily benefits the other spouse with respect to the benefits of the exempt status of the jointly owned...