Miami Bankruptcy Lawyer - Homestead Held in Revocable Trust

Miami bankruptcy lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. He has filed over 8,000 bankruptcy cases.

The bankruptcy case of In re Dumford, ___ B.R. ___ (Bankr. S.D.Fla. 2009) involved a situation where a person placed their homestead into a revocable living trust and retained a "life estate" and subsequently filed for chapter 7 bankruptcy.  In the chapter 7 case, the person, now a debtor in a bankruptcy case, claimed her life estate in the home as an exempt Florida "homestead".

The chapter 7 bankruptcy trustee objected to the exemption of this real property as exempt under the provisions of Florida Constitution Article X, Section 4.  The trustee argued that since the real property was owed by the trust it was not owned by a "natural person." Article X Section 4 of the Florida Constitution provides as follows:

SECTION 4. Homestead; exemptions.—
(a) There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:
(1) a homestead . . .

To complicate matters further, the debtor also died during the bankruptcy case. Due to the death, the chapter 7 trustee attempted to amend the living trust to make the bankruptcy estate the beneficiary of the revocable living trust. This was an attempt by the chapter 7 trustee to become the sole owner of the property.

Fortunately for heirs of the now-deceased debtor, the court refused to allow the trustee to amend the living trust as the trustee did not act until after the death of the debtor. The court held that the trust by its own terms could only amended while the debtor was living and competent.

The court's ruling though leaves open the possibility that a future trustee could amend the trust of a living debtor. This case gives much caution to the idea of filing for chapter 7 bankruptcy while one's "homestead" is held in this type of trust.

If one must file for bankruptcy relief when the "homestead" is held in such a trust, one may instead consider filing for chapter 13 relief where one generally does not face liquidation powers of a chapter 7 trustee.

Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.