Bankruptcy Trustee Attacks Homestead Purchase

The homestead protection afforded Florida residents is being tested in a Florida bankruptcy proceeding. The Florida Supreme Court, in the case of Havoco v. Hill, has held paying money to purchase a homestead property or applying funds to reduce the principal balance on a homestead cannot be reversed, set-aside, or undone on the grounds that the purchase or payment was a fraudulent transfers to avoid creditors. In the case of In re Potter, pending in the Middle District of Florida bankruptcy court, the bankruptcy trustee, Ms. Gene Chambers, has sued to recover approximately $300,000 which a debtor used to by a homestead approximately 18 months prior to filing bankruptcy on the grounds that the purchase was a fraudulent conveyance under Florida’s fraudulent conveyance statutes. It will be interesting to see whether this court finds that the Florida Supreme Courts ruling in Havoco precludes this fraudulent transfer claim in bankruptcy, or whether the court ignores Havoco and applies a different legal standard.