Florida Asset Protection : Asset Protection Law & Planning in Florida - Florida Homestead Exemption

Judgment debtors frequently maintain multiple bank accounts at particular banks. Some accounts may be in the debtor’s individual name and subject to the creditor’s writ of garnishment. Other accounts may be exempt joint accounts, wage accounts, or even accounts in the name of a separate, non-debtor  business entity for which the debtor has signature authority. Many of my clients find that their judgment creditors cause the bank to freeze all accounts at their bank including the exempt accounts and accounts of separate entities which are not involved in the lawsuit.

My clients ask me why did their creditor garnish a joint account which is obviously an exempt entireties account, or how could the creditor garnish the business account when the business does not owe the creditor any money. The answer is that the creditor served a writ of garnishment on the bank; the creditor did not serve a writ of garnishment on any particular account. The bank is the party which chose what accounts to freeze subject to resolution of the garnishment. Most banks will freeze any and all accounts which have the debtor’s name on the title or accounts for which the debtor has signature authority.  Florida law protects banks from liability from freezing an account later determined to be exempt or not subject to the debt. Banks may be liable for not freezing an account which should be covered by the writ.

 

The point is that creditors do not pick and choose what accounts to garnish. Typically, a creditor does not know how many, if any, accounts a judgment debtor maintains at a particular bank. Some creditor attorneys will garnish several of the large national banks because most people maintain bank accounts at one of the large banks. The debtor has the burden of convincing either the creditor attorney or a judge that one or more garnished accounts are exempt or contain money not property of the debtor.

To avoid garnishment of exempt accounts you need to maintain these accounts at small banks in locations which are resistant to garnishment.

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Creditors cannot garnish wages of Florida debtors who qualify as head of household. That’s the general rule. I represented a Florida resident who lived with and supported a minor child. The client was in active military duty stationed outside of Florida. The judgment creditor served a writ of garnishment on the military. The debtor responded to the writ claiming the creditor could not garnish her pay because she was a Florida resident and head of household. The military responded that they were still required to hold her pay in response to the writ regardless of Florida’s garnishment exemptions. Here’s why.

The military states that the creditor procedure for military personnel is not a court ordered garnishment, but it is an administrative procedure called “involuntary allotment.” Involuntary allotment is used because military personnel reside all over the country and are constantly being relocated. Involuntary allotment is governed by 32 CFR Part 113. The procedure has no provision for garnishment exemptions based upon state law. Therefore, head of household exemptions do not protect against garnishment of military salary using the administrative procedure of involuntary allotments.

 

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I had always thought that a creditor can garnish a debtor’s bank account in any state where the bank maintained a branch office. For example, if a debtor opened a bank account at a small Georgia bank, and the bank had a branch in Florida, a Florida court could issue a writ garnishment against the debtor’s account to be served upon the Florida branch of the Georgia bank. The creditor did not have to domesticate the judgment in Georgia and garnish the account at the Georgia bank branch where the debtor opened the account. If the Georgia bank had a branch in South Carolina, for instance, a creditor can garnish the account with a South Carolina writ. I think the law as described makes sense.

I came across a federal district court case with a different view, a view that would make more difficult the garnishment of a debtor’s  bank accounts opened outside of Florida. In this case, a debtor opened a bank account at a Pennsylvania branch of PNC Bank. PNC is a Delaware based bank with branches in many states including Florida. The debtor moved to Florida. A creditor obtained a Florida judgment against the debtor. The creditor served a writ of garnishment at a PNC branch in Florida.

A federal magistrate issued a report and recommendation, adopted by the district court judge, dissolving the writ of garnishment because a Florida garnishment writ could not apply to a bank account opened and maintained at a branch outside of Florida even though the bank had a Florida branch. The report finds that a Florida court does not have jurisdiction over property situated in another state, and that money in a debtor’s bank account is located at the branch and in the state where the debtor maintains the account relationship. Because this debtor’s account and money was in a Pennsylvania branch of PNC a Florida court could not exercise jurisdiction over the money through a writ of garnishment.  The report stated that the creditor still has a remedy in Pennsylvania to satisfy the judgment from the debtor’s bank account. The cite is 2010 WL 1790439

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A civil creditor can execute a money judgment against military pay owed to an active member of the U.S. military. While the creditor would use a “continuing writ of garnishment” to execute upon the earnings of a civil, non-military debtor, federal law provides for a different collection tool against servicemembers. The civil creditor applies to the military for an “Involuntary Allotment” which requires the allotment of up to 25% of the servicemember’s pay to satisfy the judgment.

A Florida resident joins the military and is deployed outside of Florida.  Before joining the military this person was sued by a credit card company resulting in a money judgment. The credit card company applied for an Involuntary Allotment. The debtor supports a spouse who lives in Florida. The issues is whether Florida’s head of household exemption from wage garnishment prohibits an Involuntary Allotment against a servicemember deployed outside of Florida and paid outside of Florida.

 

I have not seen any court decision on point. The debtor is still Florida resident because his absence from the state is required by the military and is temporary. The military has an interest is having its servicemen payoff their judgments and debts through involuntary allotment. There is conflict between the  military’s policy and the exemption afforded by Florida’s statutes. The Federal Wage Garnishment Law under the Consumer Credit Protection Act provides that garnishment of federal wages are subject to State laws prohibiting or limiting garnishments.

This debtor will object to the Involuntary Allotment as being prohibited from Florida’s wage garnishment exemption. It will be interesting to see whether the creditor or the military accepts the claim of exemption.
 

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My work for one of my clients involves this interesting question about bank garnishments. Most people bank at local branches of traditional banks, such as Sun Trust, Bank of American etc. A judgment creditor can garnish funds in any of the debtor’s bank accounts by serving a writ of garnishment on the bank. One of my clients banks only at so-called “internet banks” such as ING Direct  Bank or Ally Bank. These internet banks typically offer money market and saving accounts with limited check privileges.

The question which came up is how and where does a judgment creditor garnish an “internet bank account” when the internet bank has no branches in Florida. ING Direct has branches in six states other than Florida, for example. Can the creditor serve ING Direct a write of garnishment from a Florida court, or does the creditor have to domesticate the judgment in a state where ING Direct has a branch?  Is an internet bank like ING Direct subject to garnishments in any state because internet banks, by doing business over the internet, is does business everywhere its customers reside?

 

I’ve spoken with the legal departments and operation managers at two very large “internet banks.” Neither bank recalls ever being served a writ of garnishment from a court outside their home state. First, the bankers explained that there is no such thing as an “internet banks”. These banks, including ING Direct and Ally Bank are traditional bank with at least one brick and mortar branch somewhere. Your deposits in an internet bank are not floating in the internet cloud; your money is commingled with money deposited in their bank by mail, direct deposits, and ATM machines. The “internet” aspect of an “internet bank” refers only to the way they market deposits. The bankers at both internet banks told me that although they have never had to answer this question they think that a creditor in Florida would have to domesticate the judgment in another state before garnishing the Florida debtor’s account at their “internet bank.”

My initial legal research suggests that internet banks based in one state are not subject to the jurisdiction and garnishment writs of all other 49 states just because they offer online banking and accept deposits via the internet unless the bank demonstrates an intent to target customers the debtor’s state.
 

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A client asks: " doesn’t the creditor have to find out if I’m head of household before they garnish my wages." In other words, is your creditor obligated to check out your exemptions before taking action to collect a judgment? The general answer is: "no."

Florida law does not require a judgment creditor to investigate and negate possible exemptions prior to making attempts to execute upon their judgment. In this clients case the creditor legally can serve a wage garnishment on the employer. The debtor has the burden of asserting head of household exemption and dissolving the garnishment in court. The same rule applies to garnishment of an exempt entireties account. The creditors writ of garnishment will freeze the account until the debtor takes action to dissolve the garnishment. In most cases, the debtor will need to pay an attorney if he wants the garnishment of an exempt asset removed quickly.

Florida law provides valuable exemptions; the law does not guarantee that the exemptions are self-executing or free.

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A judgment creditor cannot garnish wages of a Florida domiciled debtor who is head of household. Assume, that a creditor sues the Florida resident in Georgia and gets a money judgment against a Florida resident based on a transaction in Georgia. . During the proceeding, the debtor was a full time resident of Florida and worked in Florida. The employer had an office in Georgia, but it paid the debtor his salary in Florida. Do you think that the Georgia creditor can garnish the wages in Georgia at the employer’s Georgia address, or can the debtor assert his Florida wage exemption because he is a Florida citizen?

Similarly, suppose the Florida debtor had lived previously in Georgia many years ago, and that when he Georgia he opened an annuity investment account at the Georgia office of a national finance company. Surely, Florida statutes exempting IRA from creditor levy would protect the debtor’s IRA account.

The Florida statutory exemptions will not protect the debtor in Georgia. The Georgia creditor can garnish his wages paid in Florida and his annuity to the extent either are not otherwise exempted under Georgia laws. There is a general rule of law that exemptions cannot be exported, so that most courts in other states will not recognize exemptions afforded to Florida residents. In other words, exemption laws have no extraterritorial effect.

Courts do recognize judgments and contracts from other states under the principal of "comity." Several courts have stated a general rule that the rule of comity among states extends only to rights and not to creditor remedies; rights are substantive while remedies are procedural.

Asset protection for Florida residents must guard against enforcement of judgments in other states’ courts when another court has jurisdiction over either the debtor personally or property of the debtor located in another state.

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Effective asset protection planning requires anticipation of what creditors’ attorneys may and will do to collect their judgments. The best way to learn creditor attorney strategy is to ask them. My social relationships with creditor attorneys are very valuable to me professionally, as well as personally, because they give me the opportunity to learn about their methods.

I recently had a lunch with one of Orlando’s preeminent collection lawyers. We discussed collection practices and asset protection strategy, and I found some of his comments to be interesting. I asked him what was the most effective debt collection tool. His answer was, without hesitation: bank account garnishments. Bank garnishments, he explained, was the only way to capture a significant amount of a debtor’s cash quickly and without lengthy legal proceedings. Bank accounts are where the money is. Bank garnishments strike a surprise blow to debtors which freeze their funds and usually force them to settle the remaining debt.

I next asked him whether wage garnishments were effective assuming the debtor is not head of household. He said that garnishments were not a good collection tool. First, the creditor collects small amounts of money each month toward the judgment, and his clients are not interested in long-term payback. Next, he explained, that wage garnishments usually force debtors to file bankruptcy because debtors will not work for an indeterminate future for the benefit of creditors. Wage garnishment, he felt, usually backfire against his clients' debt collection.

Many of my clients spend much time asking about charging liens a creditor could get against their LLC which operates their small business. This creditor attorney has not sought a single charging lien for many years. He cannot recall the last time he used a charging lien. From the creditor perspective, he explained, charging liens are ineffective against an LLC business managed by the debtor or the debtor’s family. The attorney explained that charging lien collection against a closely held LLC depends upon the honesty of the debtor; the creditor collects money only if the debtor voluntarily reports an LLC distribution subject to the lien. He found that most debtor LLC owners circumvent the charging lien with salary and loans, and that neither he nor his clients are able to monitor effectively the Debtor LLC distribution practices. It seems that an LLC properly formed and clear of fraudulent transfer challenges is practically a very effective asset protection too.

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Questions from other attorneys are usually the most interesting; here’s an example. A Florida attorney called me about one of his clients who was concerned about a bank garnishment. The client and his wife had a permanent residence in Florida. While on a temporary work assignment in South Carolina, the husband was sued by a South Carolina company, and a South Carolina court entered a civil judgment. The husband and wife had previously opened a joint bank account at a Florida branch of a national bank. The joint bank account is exempt from garnishment by the husband’s individual creditors under Florida law because its considered tenants by entireties property.

The couple's bank had branches in South Carolina which state does not recognize tenants by entireties ownership. The question was whether the South Carolina creditor could garnish the bank account at a South Carolina branch of the bank using a writ of garnishment issued by the South Carolina court that entered the judgment against the husband.

Florida exemptions can not be exported, so, for example, the husband’s creditor could probably garnish salary earned and paid in South Carolina even though the wages are exempt under Florida law. This debtor’s bank account is somewhat different in that the account was at a Florida branch and deposits were made in Florida. Not being sure of the answer, but intrigued by the question, I called a local creditor attorney who had garnished hundreds of bank accounts in his career.

The creditor attorney said that the best way to stop a South Carolina garnishment of the Florida account would be for the debtor’s wife to assert an exemption. Under Florida’s tenants by entireties law the non-debtor wife has an interest in 100% of the bank account. The South Carolina court has no personal jurisdiction over the non-debtor wife in this case. Therefore, the wife could raise a due process argument that the South Carolina court has no basis to garnish her money.

In this case, even assuming my creditor attorney friend is legally correct, at a minimum the non-debtor spouse would have significant costs to defend the account before a South Carolina judge who might not appreciate her argument and could garnish the account anyway. I always advise my clients never to bank at a national bank because its too easy for the creditor to attack the account outside Florida. I suggests that Florida residents concerned with asset protection bank only at small Florida community banks with no branches outside Florida. In addition to being creditor safe, these banks, I find, provide more personal service.

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Florida statutes state that earnings of the "head of household", including wages, salary, and commissions, are exempt from garnishment. This statutory exemption will not protect Florida debtors if they owe money to a federal government agency. Federal agencies can garnish up to 15% of your earnings even if you are exempt from garnishment under Florida law. Most people are aware that the IRS has extraordinary collection tools, but this super wage garnishment powers are available to the federal government to collect all non-tax debts.

A federal agency may, without court order, order an employer to withhold 15% of your salary or, garnish distributions from your own business to satisfy a non-tax debt even if state law does not permit wage garnishment. However, a federal agency may not garnish your wages if you have not been in your current job for at least 12 months and you were involuntarily separated from your previous job.

I learned about the federal government's wage garnishment rights in the course of defending a client against a federal agency's judgment. The client is being represented in court by a south Florida attorney named Peter Homer. Mr. Homer specializes in defending business people  against federal agency civil lawsuits. He is an expert in the federal government's debt collection powers and its collection practices.

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I dealt with an interesting question today about alimony and support questions. Sometimes people ask me if there are asset protection tools to guard against awards for payment of alimony or support (generally, the answer is "no") or what types of assets are vulnerable to enforce family court judgments. Today's issue was different. A divorced woman was facing a large civil judgment. The divorce court awarded the woman alimony, and her ex-husband sent her monthly alimony checks. The woman depended upon the alimony to pay her basic costs of living. She wanted to know if a judgment creditor could garnish the alimony payments from the ex-husband.

Florida statute Chapter 222 which lists the asset exemptions applicable to Florida residents does not include an exemption for alimony or support. There is no exemption in the Florida constitution nor under federal law. Florida courts, however, have protected alimony and support from garnishment. One court held that alimony was not the type of debt or obligation subject to garnishment, and that public policy calls for the protection of alimony and support. See Waters 547 So 2d 197 . At least one bankruptcy court recognized this garnishment exemption.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

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