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11/07/12 It's The Law: Florida Is A Debtor's Haven


I have heard that Florida is a very debtor friendly state. Can you explain?


All states have exemptions from creditor claims for certain assets. These exemptions are intended to carry out the public policy of each state and vary significantly from state to state. Florida has a combination of statutes which provide relatively broad protection of the assets of debtor's in Florida. This is particularly frustrating to out of state creditors, who are not aware of the scope of Florida's statutory protections.

Perhaps the best known exemption from creditor claims is Florida's Constitutional protection for homestead property. Florida homestead property is exempt from forced sale. If located outside of a city, homestead can include as much as 160 acres. In a city, homestead is limited to one half acre. There is no dollar limit on the homestead exemption.

There are three exceptions to the homestead exemption: (1) payment of taxes and assessments, (2) obligations contracted for purchase, improvement or (3) repair of the homestead, or obligations contracted for house, field or other labor performed on the realty. Protection of homestead is intended to protect the family so that the family has shelter. Homestead is generally defined as the primary residence of the person claiming homestead protection.

A favorite source of payment for creditors in many states is garnishment of wages. Through court proceedings, the creditor can require an employer to pay the creditor a portion of the debtor's wages that would otherwise be paid to the debtor. In many states, the only protection of wages is federal law limiting the portion which can be garnished. In Florida, disposable earnings of the head of a family up to $750.00 per week are completely exempt. Earnings above that amount are exempt unless the debtor has agreed otherwise in writing.

A family consists of at least two persons, with one person recognized as being in charge. That means, in any given collection case, only one spouse or member of the family can claim the head of family exemption.

If earnings are exempt, they stay exempt for six months after they are deposited in the bank. That additional exemption period is intended to stop creditors from garnishing the bank account and indirectly obtaining wages that they could not obtain directly.

Cash value of a life insurance policy is exempt from creditor claims under §222.14, Fla. Stat. That means a debtor cannot get the cash value of the policy by garnishment or other action. It also means the debtor can borrow against the cash value if allowed under the policy, and even "cash in" the policy without risk of creditor interference.

Annuities are exempt from creditor claims. An annuity is generally a contract issued by an insurance company under which a beneficiary or beneficiaries are to be paid income over a period of time. Although annuities can be entered into with private individuals, courts have held that private annuities are not protected by the statute as they are merely payments over time. Annuity payments to the debtor retain their exemption, even after deposit into the debtor's bank account. And, after protracted and expensive litigation, Florida's Supreme Court ruled in 2001 that cash surrender value of an annuity is also exempt from creditor claims.

In addition to statutory exemptions, Florida recognizes one big non-statutory exemption. Assets owned by husband and wife, as a tenancy by the entireties, are exempt from the creditors of only one spouse, although not exempt if both spouses are debtors for the same debt to the same creditor. This exemption stems from Common Law of England, but has only been adopted as an exemption in a minority of states.

Although there is a presumption that assets owned by a married couple are owned as tenancy by the entireties, the protection can be lost by careless titling of property or bank accounts. As I explained in a previous column, tenancy by the entireties is a special ownership that can only be held by a married couple and results in ownership by the survivor after death of the first spouse. It sounds an awful lot like joint tenancy with right of survivorship, but it is not the same. If the married couple opens a bank account by checking the box for joint tenancy with right of survivorship, creditors of one spouse can reach that spouse's interest in the account. Joint tenancy does not enjoy the protection of tenancy by the entireties.

Individual retirement accounts are given protection under Florida law. Federal law generally affords protection to qualified retirement plans, which must meet specific requirements under ERISA. Florida's protection for retirement accounts goes far beyond the federal exemption.

The expanded scope of Florida debtor protection is only available to Florida residents. But, merely moving to Florida does not insulate you from claims. Federal bankruptcy law may change the rules in some cases and failure to fully understand the exemption protections may prove problematic in others. This is a detailed and complex area requiring careful legal analysis for answers in any given case.

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