I’m a little unclear on how the homestead exemption from bankruptcy (in FL) works. If you go bankrupt, you get to keep your primary residence, up to 1 acre.
How is the mortgage on that property handled? If your primary residence was worth $100K, and you had a $75k mortgage on it, would you be evicted and keep your $25k equity? Would you stay in your house, keeping your $25k equity, and still have the mortgage attached to the house? Or would the bankruptcy wipe out the mortgage, and now you’d have the house w/o a mortgage?
Kind of confused, any clarifications are appreciated.
Not a bankruptcy attorney but here are my 2cents.
The Florida homestead exemption protects your primary residence from the actions of the bankruptcy proceedings. That is it can’t be sold to repay your debts leaving you on the street. The mortgage lender on your home will have to get in line with all your other creditors and hope for a piece of the repayment pie. You have to think of things in terms of assets and liabilities. You own the house, the bank owns the mortgage on the house. The bank can foreclose on the mortgage if you don’t make your payments but bankruptcy proceedings will quash that action. Again, not an attorney so if anyone else has more reliable thoughts fire away.
While the FL homestead exemption prevents creditors from forcing a sale of your primary residence to satisfy judgement creditors, there is an exception for lenders who hold the mortgage on your house.
The mortgagee can still foreclose. If an individual includes the mortgage in his bankruptcy filing, it may delay the foreclosure but does not stop it.
Just my understanding
if the lender can still foreclose on the house, then what is the point of even having the homestead exemption in the first place?
It protects your house from all other creditors. Imagine if you owned your house free and clear and were forced to file for bankruptcy. The exemption will keep a roof over your head while your unsecured creditors battle it out for your remaining assets. This exemption is one reason many well to do people establish their primary residence in Florida. When the business tanks they still get to keep the estate.
I live in Florida. Mortgages are prior to the bankruptcy, so they stay in first position. If someone wants to keep their equity, they’ll need to raffirm the mrtgage debt to save their equity positions. Otherwise the lender can foreclose on the debt.
A bankruptcy attorney will normally give this information to their clients.
In most cases 100% of value can be protected by the homesteader. This is why Florida hs more millionaires than most any state.
Consult a bk attorney if interested.