The bankruptcy code provides for 2 different instances in which the homestead exemption can be capped at $146,500. Section 522(p)(1)(D) of the bankruptcy code caps the homestead exemption at $146,500 if the homestead property was acquired within the 1,215 day period preceding the bankruptcy filing. Section 522(q) also caps the homestead exemption at $146,500 if the debtor commits certain acts. Specifically, the homestead exemption is capped under Section 522(q) if the debtor violated securities laws, caused personal injury or death within the past 5 years, or committed fraud in a fiduciary capacity.
The policy underlying the homestead cap for acquiring real property within the 1,215 days before bankruptcy is to prevent debtors from opportunistically relocating to another state before declaring bankruptcy to take advantage of generous state homestead exemption laws. In accord with the legislative intent underlying the statute the 1,215 day period does not apply to the purchase of another residence within the same state. For instance, if a petitioner purchased a home in California 5 years ago his transfer of the interest in real property into another California residence 1 year before filing will not restart the 1,215 day period and the homestead cap will not apply.
The homestead exemption can also be reduced to the extent it was acquired with non-exempt assets within the 10 year period before bankruptcy with the intent to hinder, delay, or defraud a creditor. This section of the bankruptcy code is designed to prevent the conversion with bad intent of nonexempt assets into homesteads in an effort to maximize what is often the largest exemption in bankruptcy.