When Burt Reynolds declared bankruptcy in
1996, there was one thing his creditors couldn't touch: Valhalla,
his $2.5 million estate in Hobe Sound.
Despite debts of about $10 million, the actor was able to take
advantage of Florida's liberal bankruptcy laws allowing him to keep
his luxury home while paying his creditors a fraction of what they
That did not sit too well with some members of the U.S. Senate.
"We are fans of his movies ... but we have to say that in this
case he is making out much like his title role in Smokey and the
Bandit,"' read a 1998 conference report accompanying a failed
attempt at bankruptcy reform.
Now a new bankruptcy bill in Congress may change Florida's
reputation as a debtor's haven.
Last year, there were 71,284 personal bankruptcy filings in
Florida, second in the nation only to California. Florida's total
represented nearly 6 percent of the 1.2 million personal bankruptcy
filings nationwide in 2000, according to the American Bankruptcy
Currently, Florida and four other states Iowa, Kansas, South
Dakota and Texas allow an unlimited homestead exemption, which
debtors can use to keep their homes' value out of the reach of
creditors in bankruptcy court.
In Florida, the amount of property is limited to a half-acre
within a city's limits, or as much as 160 acres in the country.
That has resulted in what some regard as high-profile abuses of
the system in Florida. Among them: Former corporate raider Paul
Bilzerian, convicted of securities fraud, has kept his 10-bedroom
mansion despite filing twice for bankruptcy protection.
Other examples include former Baseball Commissioner Bowie Kuhn,
who moved into and kept a $1 million home in Ponte Vedra Beach
after his New Jersey law firm went under in 1990, and Marvin
Warner, a one-time ambassador to Switzerland who bought a horse
farm near Ocala while seeking protection from creditors after his
Ohio-based bank failed.
"The average citizen's sense of fair play is probably insulted
when someone who has a million-dollar home declares bankruptcy, and
that's one of the assets that they're able to keep," said Kathy
Bartlett, a spokeswoman with the Florida Bankers Association, which
supports the federal bankruptcy legislation.
The Senate passed a bill Thursday that would overhaul bankruptcy
laws, two weeks after the House passed its own version.
Before the bill's Senate passage, Sen. Herb Kohl, D-Wis.,
introduced an amendment allowing debtors to keep no more than
$125,000 of the equity in their homes. According to Kohl,
congressional investigators have found that about 400 homeowners in
Florida and Texas, all with more than $100,000 in home equity,
profit from the exemption each year.
"And while they continue to live in luxury, they write off an
estimated $120 million owed to honest creditors," Kohl said.
President Bush opposes national caps on homestead exemptions but
has signaled he would sign bankruptcy legislation.
Lawmakers in states that have the homestead exemption also
oppose efforts to limit it. Sen. Bob Graham, D-Fla., said Kohl's
provision "would threaten homeownership for millions of American
families." And Sen. Kay Bailey Hutchison, R-Texas, contends it
would threaten a 130-year-old right of the states.
Neither Reynolds' attorney, publicist nor manager would comment
Some bankruptcy experts say the crackdown on homestead
exemptions will not accomplish much.
"There's something that runs very contrary to a sense of
fairness for someone to go through bankruptcy and retain a
multimillion-dollar house, but it happens very, very rarely," said
Tampa bankruptcy lawyer William Zewadski. He estimated the
exemption is an issue in less than 1 percent of the cases he has
"But when it happens, it often results in color pictures on the
front page of the paper," Zewadski said. "And people remember the
waterfront homes that have escaped being liquidated from bankruptcy
Retired federal Bankruptcy Judge Alexander Paskay in Tampa
decried Kohl's use of "anecdotal horror stories" such as that of
"This is a gross overreaction," said Paskay, a 38-year veteran
of the bankruptcy court who still hears cases as needed. "There's
no practical reality to this thing."
Sam Gerdano, executive director of the American Bankruptcy
Institute, a nonprofit research group, said there is some doubt
that a federal law can trump what is written into a state's
constitution, as Florida's homestead exemption is.
"I don't think that's a slam-dunk legal matter," he said.
"Sovereign states still have rights, so I don't think that's a