Question: A former friend of mine owes me a lot of money. When I threatened to sue, he told me that I would not be able to collect anything. He claims that everything he owns is exempt. How can that be?
Answer: Florida has very liberal laws protecting debtors. The public policy of our State makes it more important to keep people from becoming a burden on the State than making sure they pay their bills. Florida law protects a wide range of assets from the reach of general creditors.
Wages of a head of a family are protected. Disposable earnings of a head of a family up to $750.00 per week are absolutely exempt. Disposable earnings above $750.00 per week can only be reached if the debtor has agreed in writing. If the debtor has agreed in writing, the amount that a creditor can reach is still limited by federal law generally applicable to actions to collect someone’s wages. Florida’s protection extends to the wages for six months after they are deposited into a bank account.
If a person is not head of a family, his or her wages are still given some protection, but that protection is provided by federal law applicable to all creditor actions against wages. To claim head of family status, a person must either show a legal duty to support someone else due to a family relationship, or continued communal living by at least two persons with the person claiming the exemption being in charge.
Life insurance is also a protected asset. The cash value of the policy is exempt from creditor claims. And, because life insurance is usually made payable directly to a beneficiary, it also passes outside of a debtor’s probate estate and the death benefits also escape the clutches of creditors. Only if the policy is payable to the decedent’s estate will creditors of the decedent be able to reach the death benefits.
Annuities are exempt from creditor claims. An annuity is generally a contract under which an insurance company agrees to make payments over a period of time in exchange for a fixed contribution from the purchaser. Florida courts have confirmed that both cash value of the annuity and the income stream from the annuity are exempt by statute.
Florida homestead real estate is exempt. Homestead is one’s primary residence. Florida’s Constitution protects the homestead of up to one-half acre of contiguous land within a city and 160 acres if outside of a city. There is no limit on value. Personal property in the homestead is exempt up to $1,000.00.
Even if real estate is not homestead, it can be exempt from creditors of one spouse if it is owned by a husband and wife as tenants by the entireties. Creditors of both spouses can reach non-homestead real estate, even if owned as tenants by the entireties. The tenants by the entireties exemption has been extended by the courts to virtually any property owned as tenants by the entireties, including financial accounts or interests in a company.
IRA’s and other retirement accounts are generally protected, with no dollar limit. This protection extends only to Florida debtors. Federal bankruptcy law is not as broad, generally limiting retirement account protections to $1,000,000 and leaving certain types of retirement accounts open to creditor claims.
Florida debtor protection is a relatively complex area of law. The State exemptions are generally limited to Florida residents. In most cases, they are broader than any federal counterpart. Not all Florida protections can be used by a debtor in bankruptcy and, many of the protections can be voluntarily waived by a debtor. For these reasons, analysis of the available protections should be done on a case by case basis with experienced counsel.
By: William G. Morris, Esquire
William G. Morris is an attorney with offices at 247 North Collier Boulevard on Marco Island, Florida. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.
Questions for this column can be sent to: William G. Morris, e-mail: wgmorrislaw@embarqmail.com or by fax, (239) 642-0722 or
The Marco Island Eagle
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