The 7th Circuit issued a bankruptcy decision (pdf) that answered a question, the answer to which I had just taken for granted. In Chapter 7 bankruptcy, you get to claim a homestead exemption which exempts some portion of the value of your residential home from going to the bankruptcy trustee for distribution to your creditors. The level of the exemption is set by state law. In Illinois, it was $7,500 at the time the bankruptcy in the above case was filed. (In Indiana, it’s $15,000. My understanding is that Texas and Florida have very high residential exemptions; perhaps unlimited. So, if you want to screw your creditors, it might be advantageous to have a lot of your assets tied up in really nice homes in your Florida residence.)
If you have spouses who own the home and are filing bankruptcy, they each get to use their exemption — so $15,000 in Illinois and $30,000 in Indiana. The question came up, what if both spouses are filing bankruptcy and both live in the house, but only one is titled as owner. At the trial level, the court determined that the non-titled spouse who had a possessory interest in the residence was entitled to an exemption. The 7th Circuit Court of Appeals reversed, holding that, at least with respect to the Illinois exemption, the non-titled spouse is not entitled to an exemption.
Very interesting. What about beer kits and hooch distilleries? Are they protected under bankruptcy law if they are in say a Florida home?
They probably go under the personal property exemption which is $8,000 in Indiana.