"Technical Abandonment"

The recent case of In re Bast, ___ BR ___, 2007 WL 1429481 (Bkrtcy.S.D. Fla.)(Friedman J.) dealt with a motion by a discharged chapter 7 trustee to vacate the final decree and his discharge as trustee about a year after the chapter 7 case was closed as a “no asset case.” The motions were filed as part of his efforts to administer an asset for the benefit of creditors. The asset involved was an $82,000 surplus generated by a foreclosure sale of scheduled non-exempt real property after the chapter 7 case was closed.

The Court denied the chapter 7 trustee’s motion to vacate the final decree and the trustee discharge. During the chapter 7 case, which was filed in March, 2005, it was not apparent that there was equity in the real property and the chapter 7 trustee did not administer the real property and filed a report of no distribution in April, 2005. Subsequently though, a foreclosure sale on the courthouse steps in St. Lucie County produced a surplus of $82,000 from the sale of the real property.

The Court discussed that there are “basically three types of abandonment that may occur in a bankruptcy case” as set forth in section 554. The first two types of abandonment are set forth in sections 554(a) and (b) and take place upon motion of a party. The third type of abandonment is found in section 554(c). It does not involve a motion and is commonly referred to as a “technical abandonment.” A technical abandonment generally results under section 554(c) upon the closing of the case if an asset is disclosed in the schedules and is not administered during the course of the bankruptcy case.

In this case, the requirements for a technical abandonment were met and the non-exempt real property was abandoned from the estate to the debtor at the close of the case. The trustee’s subsequent efforts to administer the $82,000 surplus for the benefit of the creditors were denied by the Court. As a result, the debtor was entitled to the $82,000.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

The Florida Homestead – It Comes in Three Flavors

Two recent Florida Third District Court of Appeals decisions provide a review of the meaning of the Florida Homestead in three contexts. These decisions are Phillips et al. v. Hirshon, etc. el al., 32 Fla. L. Weekly D1151 (Fla. 3d DCA May 2, 2007)and Cutler v Cutler, 32 Fla. L.Weekly D538 (Fla. 3d DCA Feb. 28, 2007). In these decisions, the Court noted that homestead is given meaning in three different contexts under Florida law: 1. exemption from taxation per Art. VII, Section 6, Fla. Constit., 2. exemption from forced sale before and at death per Art. X, Section 4(a)-(b), Fla. Const., and 3. restrictions on devise and alienation, Art. X, Section 4(c), Fla. Const. See also Snyder v. Davis, 699 So.2d 999 (Fla. 1997)

The Court in Phillips observed in a footnote that the definition of homestead property for Article VII, section 6 purposes (taxation) is not the same as Article X, section 4 (forced sale and devise and alienation).

The Court in Cutler notes that neither the Florida Legislature nor the Florida Constitution provide a definition of what is homestead property for purposes of Art. X, Section 4 (a)(forced sale and devise and alienation). The Court states that based on the text of the Florida constitution and applicable case law, it is apparent that the following requirements must be satisfied for property to be determined as homestead property: 1. the property must be owned by a “natural person”, 2. the person claiming the exemption must be a Florida resident who establishes that he intends to make the real property his permanent residence, 3. the person claiming the exemption must establish that he is the owner of the property, and 4. the property claimed as the homestead must satisfy the size and contiguity requirements of the constitution. Furthermore, the Court noted that the Florida Constitution does not limit the types of estates that are eligible for homestead status. Therefore, the exemption may generally attach to any estate in land whether it is a freehold or lesser estate. A life estate has been expressly found to be among the property interests eligible for homestead status. Furthermore, the Court noted that real property held in trust can be impressed with the character of homestead, including revocable and irrevocable trusts.

A provision protecting homestead property first appeared in the Florida Constitution of 1868. Art. IX, Section 1, Fla. Const. (1868). The Court noted that historical materials indicate that it was originally inspired by a desperate attempt by Floridians to repel the invations of “Yankee carpetbaggers” at the end of the Civil War. The limitation on devise and aliention first appeared in the 1885 Constitution. Art. IX, Section 1-3, Fla. Const. (1868).

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

Bullard: Au Contraire SD Florida Gosman Decision

Judge Weil recently issued her decision in the Bullard case on the issue of the absolute priority rule and the retention of exempt property in the context of the confirmation of a chapter 11 plan for an individual debtor. In re Bullard, 358 B.R. 541 (Bankrtcy.D.Conn 2007).

The Court noted that there was a disagreement among the courts concerning whether a chapter 11 debtor may retain his exempt property and still comply with the absolute priority rule. Cases such as In re Gosman, 282 B.R. 45 (Bankr.S.D.Fla.2002) by one Bankruptcy Court Judge from the Southern District of Florida, held that the retention of exempt property violates the absolute priority rule. Judge Weil held that the better line of authority holds that the debtor’s retention of his exempt property does not violate the absolute priority rule as such retention is not “on account of…[the debtor's] junior interest…” The court explained that “[o]nce the exemptions are allowed the properties are no longer part of the Debtor’s estate, and the Debtor does not retain property on account of such interest because he retains it as a matter of right by virtue of recognition of his right to exemptions…”

The Bullard court did not base its decision on an argument that the BAPCPA amendments to 1129(b)(2)(B)(ii) effected a waiver of the absolute priority rule as to individual chapter 11 debtors as the debtor abandoned the argument.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983