In May 2009, Candace Booth filed a Chapter 7 bankruptcy petition. Her outstanding debts were mortgages against a home she was in the process of trying to rent or sell, credit cards and an auto loan.
Booth had paid cash outright for her personal residence in March, 2009 by liquidating her retirement and brokerage accounts and obtaining a small amount of money from her daughter, according to court records.
In her bankruptcy petition, Booth listed her personal residence as being protected as a fully exempt homestead property under Florida Constitution Article X, Section 4(a)(1) and Florida Statute Sections 222.01 and 222.02.
Prior to the recession, Booth had been in business as a natural health consultant and also received some income via social security. Her business reportedly dried up during the recession, and by the time she filed for bankruptcy relief, she was earning $8 an hour working part-time in her daughter’s business, and had a negative net monthly income, according to court records.
After the evidentiary hearing in the bankruptcy court, the bankruptcy trustee filed an objection to Booth’s bid for homestead protection of her residence.
The trustee argued that Booth had purchased the property using non-exempt assets with the intent to "hinder, delay, or defraud" her creditors, as barred by 11 U.S. Code Section 522(o).
The federal bankruptcy court for the Middle District of Florida overruled the trustee’s objection and found that Booth’s personal home did in fact have homestead protection and could not be liquidated to pay her creditors.
First, the court explained that to defeat Florida’s homestead protection, the Trustee would have to show one or more "badges," or indicators, of fraud and extrinsic evidence of Booth’s intention to defraud her creditors at the time she purchased the home.
The court rejected the trustee’s argument that the following actions of Booth provided sufficient indicia of her intent to "hinder, delay or defraud her creditors," so as to invalidate homestead protection on her personal residence.
Recounting the unraveling of Booth’s financial stability fact-by-fact, the court determined that the sequence of events showed Booth’s innocent intent. Booth had obtained the home equity line of credit for her daughter’s use in financing her business; and her daughter had committed to making the monthly credit line payments, the court found.
Only when the economic downturn impacted her daughter’s business and prevented her from continuing to make the payments did Booth realized that the indebtedness on the line of credit had risen to $39,000, the court also found.
Booth quickly realized that she could not make the payments on the mortgage and the line of credit on her then-home and still cover her living expenses. She consulted a mortgage broker and was advised that she could not refinance the home due to its drop in value; a real estate broker she talked with advised her to sell or rent that home, and instructed her to move out of the property to maximize the chances of it selling.
He also reportedly advised her to purchase the second home to ensure herself a place to live. She was never advised by either professional that the option of a short sale existed, according to court documents.
Booth charged some living expenses and expenses of preparing the home for sale to her credit cards, but the court found that she did so with the full intention of repaying them.
When her own business deteriorated in April and May of 2009, she became unable to pay her bills. Booth, a 64-year-old woman, testified that she was panicked about having a place to live and didn’t think the matter through properly when she decided to buy a new home rather than simply pay off her mortgages with the funds from her liquidated retirement and brokerage accounts.
Because the court found Booth’s testimony to be credible, it refused to find that she had the intent to defraud her creditors when she purchased her personal residence. Accordingly, the trustee’s objection to Booth’s home’s protection from her creditors under the Florida homestead statute was overruled.
