Florida Bankruptcy Judge Applies Homestead Cap

In an opinion rejecting the conclusion of an Arizona Bankruptcy Court discussed earlier, the Chief Bankruptcy Judge of the Southern District of Florida has concluded that the 522(p) homestead cap applies in Florida, an "opt-out" state. In re Kaplan, Case No. 05-14491-BKC-RAM (Bankr. S.D. Fla. Oct. 6, 2005). You can view the opinion here: In re Kaplan. [Edited 11/28/05: It's now been published at 331 B.R. 483].

As discussed earlier, BAPCPA amended 522(p) in order to put a $125,000 limitation on the homestead exemption available to a debtor who purchased a home less than 1,215 days prior to filing for bankruptcy. As a result of the language used by Congress, at least one court has concluded that the cap only applies in states where a debtor has a choice between the federal and state exemptions, and not in states where the legislature precludes use of the federal exemptions. In re McNabb, 326 B.R. 785 (Bankr. D. Ariz. 2005).

Judge Mark considered McNabb, and conceded that the decision is supportable "based on the language as drafted, interpreted using narrow rules of statutory construction" But he stated that "this Court strongly disagrees with the result." Unlike Judge Haines, Judge Mark found the language which invokes the cap "as a result of electing under subsection (b)(3)(A) to exempt property under State law" to be ambiguous. While it could mean that the cap only applies in "non-opt-out" states where a debtor has a choice of electing between the state and federal exemptions, Judge Mark suggested it could also be intended to describe debtors who are utilizing state law exemptions under 522(b)(3), whether their state permits a choice or not.

Conceding that Congress did not choose the best language to accomplish its intended purpose, Judge Mark nonetheless found the ambiguity permitted consideration of the legislative intent. Contrary to Judge Haines' struggle to find anything meaningful in the legislative history, Judge Mark found the legislative intent to be clear, citing a House Report indicating that the bill intended to restrict the "mansion loophole" by which debtors in certain states could shield virtually all the equity in their homes, and statements of particular senators specifically referring to wealthy individuals doing so "in a State such as Florida." Judge Mark found nothing in the legislative history suggesting an intent that the cap be limited only to non-opt-out states.

As a result, the court interpreted the language of 522(p) to apply to all states, declining the opportunity "to be vindictive to its legislative colleagues when it can and should interpret and apply a statute as intended." The Kaplan decision now sets up a conflict over the effect of the 522(p) cap and its effect in the "opt-out" states where the state legislature does not permit its residents to elect between the federal and state exemptions.