In 2005 Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act(BAPCPA) which greatly overhauled existing bankruptcy laws. One such provision in the code seemed to be a direct response to some high profile debtors who would relocate to Florida and shortly thereafter become eligible for Florida’s Homestead Exemption. In short, many of these debtors were basically converting non-exempt assets into exempt assets in order to protect as much property as possible from their creditors. OJ Simpson is one such example.
In response Congress enacted Section 522(o)(4) in order to to preclude Florida’s “virtually limitless” homestead exemption in instances of fraud. See In re Osejo, 447 B.R. 352, 354 (Bankr. S.D. Fla. 2011). Under this section, Florida’s homestead exemption may be denied or reduced to the extent a debtor, acting with the intent to hinder, delay or defraud his creditors, converted non-exempt assets into exempt assets within ten years of filing his bankruptcy petition.
The conversion of non-exempt property into exempt property prior to filing is not necessarily fraudulent. This is still especially true when it comes to Florida’s Homestead Exemption. Courts have repeatedly held that a debtor’s homestead claim is presumptively valid. This means that an objecting party would need to establish by a preponderance of evidence that the debtor acted with intent to hinder, delay, or defraud creditors. The mere conversion of non-exempt assets into exempt assets is not enough to prove intent without extrinsic evidence of fraud.
See In Re: Cook, 23 Fla. Law Weekly B190 (Bankr.N.D. Fla 2011).
Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation. He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida. He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.