Florida Asset Protection Blog

Garnishment of Exempt Bank Accounts

Readers of this Blog know how to title their bank accounts so they are protected from judgment creditors. Suppose a married person owns his accounts as tenants by entireties or in the name of a separate legal entity, and the creditor nevertheless issues a writ of garnishment of the bank free temporarily freezing the money in these exempt accounts. What do you do ?

The first thing you should do is file a standard form with the court claiming your right to exempt this money. Better yet, have your lawyer file a motion to dissolve the garnishment. It is important to know that the Florida statutes entitle you to an “immediate” hearing on your motion to dissolve a garnishment. Be prepared to bring copies of bank statements, signature cards, or account agreements to show the judge.

Next, you and your attorney may consider taking more aggressive actions, especially if you believe your creditor knew the accounts should be exempt and garnished them anyway to harass you or extort a settlement. Florida common law allows a debtor to sue its creditor for the tort of wrongful garnishment if the creditor acted maliciously. A suit is proper after the garnishment is dissolved, and the wrongful garnishment must be brought as a new and separate action rather than a counterclaim. Courts have held that lack of probable cause to garnish an account implies malice. The leading case is Strickland v. Commerce Loan Company, 158 So. 2d 814. The facts necessary to support a claim of wrongful garnishment may also support recovery on theory of abuse of process.

As a practical matter, if a debtor is surprised by garnishment of entireties account, wage accounts, or other exempt financial accounts the first step is to contact the creditors attorney, explain your exemption, and offer reasonable evidence. Give the creditor a chance to withdraw the garnishment. Most will do so if they see they have frozen an exempt account. If the creditor persists then a motion to dissolve the garnishment followed by a new lawsuit against the creditor may be appropriate.

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

Bankruptcy in Canada

I was visited by a Canadian bankruptcy trustee vacationing in Florida who wanted to learn more about our bankruptcy system. Canada has the equivalent of Chapter 7 and Chapter 13 bankruptcy statutes. The main difference between their system and our own is their exemptions. Exemptions differ by Province. In Ontario, for example, the Debtor gets no homestead exemption. Ontario provides more liberal personal property exemptions such as $10,000 household goods, a $5,000 vehicle exemption, $5,000 clothing, plus a $10,000 household furniture exemption. Another interesting difference is that throughout Canada bankruptcy is mostly non-judicial. Bankruptcy petitions are not prepared by attorneys, and attorneys normally do not represent debtors before the trustee. A debtor seeking to file bankruptcy submits to the jurisdiction of a licensed bankruptcy trustee who examines the debtor and collects non-exempt property. There are about 900 licensed trustees throughout the country, most of whom work for corporations. The trustees in private practice must develop their own practice and solicit debtors as customers. My visitor, a licensed trustee, said he charges about $1,400 per case.

Do Non-Residents Enjoy Tenancy By Entireties Protections?

A caller from Kentucky asked about asset protection of several rental properties located in Florida and owned jointly with his wife. The caller was facing a potential civil judgment against him individually, but his wife was not named in the lawsuit. Property owned by husband and wife in Florida is presumed to be owned as “tenants by the entireties”, and such property is immune from judgments against either spouse individually. This caller was a resident of Kentucky, and that state does not recognize tenants by the entireties ownership and not other exemption is given to marital property. The question was whether the jointly owned Florida properties are protected from a Kentucky judgment against and individual Kentucky resident who owns Florida real property jointly with his spouse.

My initial opinion given without the benefit of research is that the properties are protected from the husband’s creditors. The law applicable to real property is the law of the state where the property is located, in this case, Florida. Contrarily, a Florida resident who jointly owned property in Kentucky could not protect the property as tenants by entireties assets if Kentucky does not recognize the concept. Also, tenants by entireties is not an exemption granted by Florida Statutes and is not specific to Florida residents. Tenancy by the entireties is a common law protection which means it is the product of court decisions interpreting common law concepts. The most recent and most comprehensive court decision is the Supreme Court of Florida decision in Beal Bank v. Almand in March, 2001. The Beal Bank decision granted tenancy by entireties protection to Florida property rather than to Florida residents.

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

Using Prepaid Automobile Leases To Shield Wealth

One of my clients suggested an ingenious way to shelter equity in a motor vehicle which otherwise would be vulnerable to creditors attack. The client proposed to lease an expensive car, and after a few months, pre-pay the majority of lease payments. After three months the client proposed to file bankruptcy.

The leased car would not be an asset subject to creditor attack because it is not property owned by the debtor. The prepayment of lease obligations is not a fraudulent conveyance because the client would be receiving reasonable consideration for the payment in the form of car use. If the client does not file bankruptcy he is free to make prefer one creditor over other creditors and make special arrangements or grant security to the preferred creditor. If the client files bankruptcy the pre-payment of lease obligations more than three months prior to filing would not be a reversible bankruptcy preference.

The technical fault with this asset protection strategy is the client’s failure to understand that his lease is also an asset. Prepayment of the lease creates asset value subject to creditors because even though the client is liable for future lease payments he has prepaid use of his leased vehicle until payments are next due. The use of his vehicle is valuable and is technically an asset. A creditor could levy on the client’s prepaid lease interest.

On the other hand, few creditors or trustees appreciate that leases are assets because leases are most often seen as liabilities. Therefore, this asset protection plan technically does not work, but practically, it may be an effective tool to shield asset value from creditors. I have not researched this plan would be interested in comments of others who may have dealt with this issue in a prior situation.

posted February 16, 2005, by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Health Savings Accounts

My health insurance agent, Mark Boxman, suggested changing medical insurance from a traditional PPO plan to a high deductible plan funded though a Health Savings Account. Naturally, one of my first inquiries was to see if the Health Savings Account is an exempt asset under Florida statutes.

Health Savings Accounts (“HSAs”) were recently enacted as part of the 2003 prescription drug bill in Congress. Health insurance companies this year have offered new high deductible insurance plans that are legally compatible with HSA accounts. HSA accounts were modeled after MSAs which are specifically exempt from creditors judgments under Florida Statute 222.22. Under current Florida law these new HSAs are not exempt from creditors. However, there is a proposed statutory amendment pending in the Florida Senate that would afford to the new HSA account the same protections enjoyed by MSAs. Given the importance of HSAs in today’s medical insurance planning and their role in reducing insurance costs I expect that the Florida legislature will enact creditor protection for HSAs. In that event, HSA balances would also be exempt in bankruptcy proceedings. The HSA is not only a useful tool to lower health insurance premiums, but it is also a part of Florida asset protection planning and bankruptcy law..

Does This Smell Like A Fraudulent Conveyance?

I was in a deposition today representing a lady who was the recipient, transferee, of an alleged fraudulent conveyance. The allegations are unique; here’s what happened. My client, a professional mortgage broker, loaned money to a businessman evidenced by a promissory note. The note stated that the loan was secured by two parcels of real estate and a mortgage note receivable from a third party. At the time of the loan, the collateral’s value was close to the original note amount. The note was not recorded, and there was no separate mortgage. My client did not know the borrower at the time of the loan, but subsequent to the loan they became good friends. The businessman found it impossible to make payments on the note. My client and the businessman agreed that to satisfy the note the businessman would assign to my client all the collateral. The collateral by then had appreciated, and my client received assets close to double the amount of money she originally loaned. Just over one year after the assignment of collateral the business man filed Chapter 7 bankruptcy. The trustee is suing my client to recover the assigned assets.

This fact situation raises some interesting questions which I have yet to research. For instance, did the businessman receive reasonable value for his conveyance of property? Should my client be penalized because the collateral increased in value or that she made an over secured loan and a profitable business deal? Does it make any difference that the parties were on friendly terms after the loan was made? Assuming no collusion between the businessman and my client I do not think this transaction “smells” of a fraudulent conveyance designed to avoid creditors. Prior to one year before bankruptcy the debtor/business man is free to prefer any creditor. However, I also understand that the trustee and other creditors are angry because my client was enriched while everyone else may be wiped out. It will be interesting to see how this case unfolds

New Bankruptcy Bill Introduced in Senate

A new bankruptcy law reform has been introduced to overhaul the nation’s bankruptcy code. This past week Senator Grassley (R-Iowa) introduced a bill which makes it more difficult for debtors to file Chapter 7 bankruptcy The bill aims to cut down on abusive and frivolous bankruptcy filing. Its principal change is a “means test” for people wanting to file Chapter 7 bankruptcy. People who earn less than the median income in their state are exempt from means testing. Especially important for people wanting to take advantage of Florida homestead protection, the bill proposes a limitation on the amount of money which can be exempted in bankruptcy under Florida homestead protection. The limitation applies only to people who have recently moved to Florida. The bills assault on homestead protection applies only to those debtors who file bankruptcy. The bill does not otherwise take away any of Florida’s constitutional homestead protection.

The Senate Judiciary Committee is scheduled to hold hearings on the bill on Thursday, February 13, 2005. The Committee’s chairman, Senator Spector, has indicated he would like the Judiciary Committee to vote on the bill by February 21, 2005. This bill does not include the controversial “abortion provision” sponsored previously by Sen. Schumer which helped defeat what was essentially the same bill during the previous Congress.

Can Alabama Physician Claim Florida Residency

I received a call from an attorney in Alabama about his physician client who was interested in declaration of Florida residency and protection under Florida homestead law. The physician owned a house in Florida which he visited occasionally. He had a Florida drivers license, was registered to vote in Florida, and had filed a declaration of domicile in Florida courts. The physician was not licensed to practice medicine in Florida. He and his family lived in a house in Alabama where his children attended school. He worked in Alabama and earned no income working in Florida.

Getting a Florida license and voters card is not sufficient to establish residency if you don’t reside in your Florida property. This physician has only occasional contacts with his Florida property. The facts do not support Florida residency necessary to take advantage of Florida asset protection law. If his family resided in the Florida property and the physician commuted to work in Alabama, there would be a much stronger case for Florida residency and the exemption of his Florida property under Florida homestead laws.