Conserving assets upon bankruptcy filing based on the homestead exemption

The homestead exemption is an exemption to the federal bankruptcy laws which affords individuals filing bankruptcy financial protections, the specifics of which vary by state. Most often the exemption protects an individual who is filing bankruptcy from creditors who want to liquidate the debtor's real estate to satisfy financial obligations. The exemption presents somewhat of a loophole, the effects of which have been minimized since the 2005 Bankruptcy code changes. However, the exemption presents an interesting issue.

The issue: Each state sets its own homestead exemption rules, either by statute or state constitution. The most liberal exemption, value-wise, is offered by Florida. There is no monetary limit to the value of the property one may exempt from the estate. All other states have monetary limits (ie. $125,000 in ...) or size limits (10 urban acres or 100 suburban acres of Texas property). Because of the unlimited monetary value homestead exemption in Florida, a debtor seeking to protect assets from creditors upon a bankruptcy filing may seek to invest heavily in Florida real estate.

Optimally, the investment will take place a year or more prior to the filing of bankruptcy to foreclose any fraudulent conveyance issues (the court analyzes all transactions within the six month period prior to the bankruptcy filing for activity that reflects an attempt to hide or protect assets from creditors). The property is protected by the exemption when the debtor files for bankruptcy, leaving a valuable asset for the individual to fall back on after the filing.

This activity is in direct contrast with the spirit and intent of the bankruptcy code. The bankruptcy provisions aim to help individuals who have fallen on hard times (the three most common reasons for bankruptcy filings are death of a spouse, medical bills and loss of employment) and give them a 'fresh start'. In a bankruptcy filing a "trustee" will manage the bankruptcy estate, disposing of the debtor's non-exempt property to repay as much of the outstanding debt as possible. After the dispersement of assets to creditors, the debtor is no longer liable for any debts incurred prior to the bankruptcy filing (save for certain debts which may not by discharged - for example, student loans). All previous debts are, for all practical purposes, fully satisfied.

NJ's version of the Baker Act

I was researching involuntary commission of individuals. Seems the Baker Act, passed in Florida, is the forerunner for similar laws in other states. New Jersey provides for involuntary commission of an individual in N.J.S.A. 30:4-27 et seq. Full text can be found here

You can also find a sample form for a temporary order for involuntary commitment in NJ here