Florida Asset Protection Blog

Junk Debt Buyer Suing For Mortgage Deficiency

There have been some interesting comments to the blogs concerning deficiency judgments. One comment says that it is unlikely that a junk debt buyer can successfully buy and enforce a mortgage company’s rights to a deficiency judgment because the secondary buyer would be reured to produce the original mortgage note. He says that owing to securitization and resalse of mortgages it is difficult for lenders and buyers of their deficiency rights to produce original notes unless they are members of organizations which serve as a repository for original documents. This person says that a debtor who lost property in a foreclosure can easily defend a deficiency suit if the bank sells its deficiency rights to a third party junk debt collector.

However, another reader provided a less optimistic assessment. Larry Kosto, Esq. is one of the best debt collection attorneys in Orlando and represents several buyers of junk debt sold from banks. Mr. Kosto states that in order for a bank to get an underlying foreclosure judgment the lender is required to submit the original note or have the court established the lost instrument. If the note was deposited with the court during the foreclosure or if the court reestablishes the lost note the purchaser of the deficiency claims can step into the shoes of the original lender and proceed without the ability of the debtor to question the existence of the original document. Also, Mr. Kosto, states that the borrower may be estopped from challenging the existence of the note if the issue was not raised in the underlying foreclosure.

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

Bank Invades Checking Account To Pay Credit Card Bill

A prospective bankruptcy client told me that Bank of America took money from his B of A bank account without notice to pay a delinquent credit card bill. The bank did not obtain a writ of garnishment, did not have a money judgment, and had not even filed suit. He wanted to know if the bank could seize his bank account without notice.

Generally, a creditor cannot get money from your bank account just because your bill is overdue until the creditor sues you and gets a judgment. It may be that the customer had a written credit card agreement with B of A for this card which gave the bank a right to take money without notice to pay past due bills. I am not familiar with terms and conditions of credit card agreements as I do not practice consumer law. If there was a written agreement to that effect the bank probably acted properly. Or, it may be the bank did something it wasn’t supposed to do.

Many people who might have difficulty sometimes paying credit card debt should read credit card agreements to see what rights the credit card company has to invade bank accounts maintained at the same financial institution.

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

Deficiency Judgments: A Different Opinion of Risk

In response to my statements on this Blog that most lenders do not pursue mortgage deficiency judgments, I received a email from an experienced collection attorney expressing a contrary opinion. The collection attorney (he did not giver permission to reveal his name) stated that he knows that lenders will be pooling mortgage deficiency judgments and selling them to collection companies for pennies on the dollar. Credit card companies have an established practice of selling non-performing credit card debt at seep discount. This same attorney says that many borrowers who walk away from mortgages will be in for a big shock in the future when collectors who have purchased the mortgage companies deficiency rights surprise the borrower with legal action.

Whether or not the attorney’s prediction is correct will be seen in the future. As stated often, my own experience over the past few years is that deficiency judgments are rare, and most attorneys and bankers I have spoken with agree. Yet, if its economically practical to purchase mature deficiency claims then there might develop an industry to pursue some of today’s numerous homeowners walking away from their mortgages. The homeowner needs to be aware of all opinions and predictions in order to make informed financial decisions.

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

Old Judgments Can Take You By Surprise

Judgments never go away. There is a 20 year statute of limitations for enforcement of judgments. Old judgments can come back to bite you. Take, for instance, the experience of a debtor who called me earlier this week who had a judgment entered against him in California in 1995. The debtor currently lives in Florida. She had heard nothing from the judgment creditor since 1995. Without warning, a couple week ago she found that writs of garnishment had been placed on all of her several bank accounts and brokerage accounts. All financial accounts were owned with her husband as tenants by entireties and were exempt.

The debtor told me that many of her outstanding checks bounced. She had to go to court to get the garnishment dissolved on the basis that the accounts were all exempt entireties accounts. She incurred legal fees and great inconvenience. If the creditor had any reason to know that the financial accounts were exempt joint accounts the debtor may have a cause of action against the creditor for wrongful garnishment.

It is unlikely that the original creditor is the party trying to execute on this judgment. Most creditors let judgments lie on the public record after their initial collection efforts. What may have happened in this instance is that the original judgment was sold to a third party investor, probably a collection company. There are companies that pay pennies on the dollar for old judgments in hope of making money by a surprise attack on a complacent debtor. The lesson is that people must maintain effective asset protection plans long after a judgment is entered against them. Asset protection must remain up to date and correctly implemented. Don’t relax just because your asset protection has effectively defended initial creditor attacks because you do not know when the next collection attack will come.

Can Creditor Seize Alimony Payments

A divorced female reader submitted an interesting question about alimony payments. The reader relies on alimony payments from former spouse to pay most of her bills. She does not support a child, and therefore, she is not the head of a household. She is facing potential judgments from credit card companies as a result of her inability to pay some debts incurred during the marriage. She asks if her creditors could garnish her alimony payments.

The Florida Statutes do not exempt alimony from execution by creditors. Alimony in other context is considered to be a form of income. Therefore, if a debtor receiving alimony supported a child and was head of household the debtor could take the position that her alimony is protected under Florida’s wage exemption. This reader lives alone and is not head of household. There is no statutory exemption protecting her alimony.

Nevertheless, several Florida courts including both state courts and federal bankruptcy courts have issued decisions stating that alimony is not subject to claims of creditors or a bankruptcy trustee. These courts have held that it is against public policy to allow creditors to seize alimony. Much of Florida’s debtor exemptions are based on the policy to protect families. The protections are not designed to excuse debtors as much as protecting those financially dependent on debtors. Court decisions exempting alimony from garnishment probably reflect a policy of protecting single parent households who depend on alimony income.

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

Garnishment: What Is Protected From Wage Garnishment For People Not Head of Household

I have had a few discussions during this past week about creditor’s ability to garnish wages of judgment debtors who are not head of household and who do not qualify for Florida’s wage garnishment exemptions. If you are not head of household the Florida statutes permit creditors to garnish your wages. Garnishment is limited to amounts otherwise provided by federal wage garnishment laws. Federal law permits garnishment of 25% of the debtor’s net earnings.

One person asked me if voluntary contributions to company sponsored pension plans was deductible from gross wages for purposes of determining net wages subject to garnishment. I found a few court decisions which said that the wage garnishment statutes contemplate involuntary deductions from salary such as income taxes, union dues, or court order child support and alimony. Voluntary retirement payments would not be deductible for purposes of computing wages subjection to garnishment. Otherwise, debtors could maximize pension contributions as a means of avoiding wage garnishment and still keep the money for their future use.

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

Mortgage Deficiency: Time Limits

A mortgage lender has the option to pursue a deficiency judgment following a foreclosure. Many people have asked me how long does the mortgage lender have to decide whether or not to get a deficiency judgment. Otherwise stated, what is the statute of limitations applicable to deficiency judgments. I do not practice civil litigation and have no personal experience litigating mortgage deficiency proceedings. I referred the question to a professional colleague who is involved in real estate and lender litigation. He said that there is a four year statute of limitations on deficiency judgments. If so, a lender has up to four years after a foreclosure judgment to file an action for a deficiency judgment against the borrower. As a practical matter, most lenders decide whether or not to seek a deficiency shortly after the foreclosure is complete. It is possible, but unlikely, a borrower will face a deficiency action years after the foreclosure judgment.

Creditor's Rights To Restricted Stock

A man worked as an executive for a public company and received compensation in the form of stock in his employer company. His stock certificates were restricted. He could not sell the stock certificates for three years, and he could not assign the certificates. Only the employee could redeem the certificates for cash, and could do so any time during his lifetime. He could not bequeath the stock to his heirs. The man asked me whether a creditor could levy on his stock certificates.

There are very few cases in Florida dealing with a creditor’s rights in a debtor’s restricted stock. There are bankruptcy cases which hold that the present fair market value of the restricted stock, considering all restrictions, is part of the bankruptcy estate and may be taken by a trustee in bankruptcy. The debtor then could redeem the stock for its current market value considering the sale restrictions. I found state court cases that treated restricted stock as untouchable by creditors. The state court case stated that a creditor cannot take a stock from the debtor by legal process if the debtor could not voluntarily assign the stock to the creditor.

A creditor acquires no more than the debtor’s rights and interest in the debtor’s assets. Restricted stock is not an exempt asset. A creditor probably could levy upon the stock. The levy may prevent the judgment debtor from exercising his rights to redeem the stock. The company may intervene and contest the creditor’s attempt to sell the stock. I suspect that many creditors would levy upon the stock if nothing more than to prevent the debtor from accessing the value in this asset for his own benefit.

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

Garishment: What To Do If Your Bank Account Is Improperly Garnished

I get frequent calls from people whose checking accounts have been improperly garnished by creditors. Sometimes a individual debtor has an account owned jointly with his spouse as tenants by entireties which account is exempt from creditors of either individual spouse. In other cases, a caller states that the account contains wages and that he is head of household. This money, too, is exempt. Some creditors do not know your bank account has exempt money. For example, when the creditor sees an account in the debtor’s individual name the creditor does not know ( or does not want to know) that it’s a wage account. Creditors that garnish joint accounts often do not know (or do not care) that the money may be exempt. Remember, not all accounts owned jointly with your spouse qualify for entireties accounts; there are exceptions. For example, if husband and wife do not put their names on the account at the same time, or if the current spouses first opened the account before they were married, the account technically is not a protected entireties account. When a creditor improperly garnishes a protected bank account it is up to the debtor to get a court order dissolving the garnishment.

Florida law provides that a debtor have an expedited hearing to dissolve an improper garnishment. I do not generally practice litigation, and therefore, I do not assist people who need to file a motion to dissolve a garnishment. Most times, when someone asks me for help to relieve them from an improper garnishment of their checking accounts I recommend a man named Larry Kosto, Esq. with the firm of Kosto and Rotella. (407-425-3456). Larry works mostly for creditors trying to collect money from people; he is one of most experienced and aggressive collection attorneys I know. If you want to defend a garnishment or any other collection in court I suggest you hire someone who works for the other side.

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

Income Tax And Asset Protection

I recently read seminar materials about asset protection from income tax debt which had been published by Larry Heinkel www.taxproblemsolver.com. Larry is an expert in the area of income tax debt in bankruptcy. His article pointed out some common misunderstandings about tax debts. First, Florida’s homestead law does not protect homeowners from income taxes. A tax lien attaches to your homestead unlike a civil judgment. Next, Florida’s statutes prohibiting creditors from garnishing wages of the head of household does not protect against IRS collections. Also, a divorce decree which specifies which spouse is responsible to pay tax liability is not binding on the IRS. The IRS can go after either divorced spouse for the full amount of tax debt.

Enforcement Of Divorce Judgments Against Mobile Debtor Spouse

Someone called me today about protection from alimony and support judgment emanating from a divorce. The question was whether a spouse can avoid contempt for non-payment if the spouse’s normal job requires constant travel and relocation around the United States. The general rule is that most asset protection tools do not protect against marital decree liability. Marital courts have equitable powers to change ownership rights in property otherwise exempt from general judgment creditors. A judge can hold a divorced spouse in contempt simply for not paying court prescribed marital debts.

In this instance, the practicality of enforcing a marital decree against a debtor-on-the-move may offer practical protection. The creditor spouse would have to domesticate the marital judgment in whatever state the debtor spouse is currently working and residing. Locating a moving debtor and serving him with process can be very difficult. If the debtor spouse returned to Florida where the original marital judgment was entered the court could hold him in contempt and incarcerate him for failure to comply with prior court orders.

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

Is Social Security Protected From Government Debt

The general rule is that social security benefits are exempt from garnishment. There are exceptions to most rules. One of my clients had retired from a government agency, and the government claimed the client owed the government money. The agency represents that they have the right to a lien on all government benefits, including social security payments. The agency did not cite a statute or contract right. However, the government’s position makes sense. If you owe money to the IRS you cannot receive a tax refund. Similarly, if you owe money to another government agency it seems reasonable that agency have a lien on government pensions and other benefits. As with tax debt, asset protection rules are often different when the creditor is the U.S. government.

Garnishment Of Wages Paid By Florida Company To Texas Resident

A lady residing in Texas emailed me about a judgment entered in a Texas court over 10 years ago. She works in Texas for an employer which has its main corporate office in Florida. The Texas creditor domesticated its judgment in Florida. The creditor had the Florida court issue a wage garnishment which the creditor served on the employer at its corporate office in Florida. The lady said that she is head of household as she is divorced and supports her minor child. She asked whether the creditor can garnish her wages in Florida as opposed to Texas where she resides, and whether she can take advantage of Florida laws preventing garnishment of head of household.

Florida law would apply to creditor attack on real estate located in Florida and owned by a non-resident. As to personal property, including wages, the applicable law is based on the debtor's residence; in this case, Texas. Because the debtor is not a Florida resident she cannot claim head of household exemption. Florida courts have held that the wage garnishment statute is designed to protect wages of people who are Florida residents at the time the wages were earned. The creditor can garnish wages at the employer's principal office in Florida. Otherwise, wages paid anywhere in the country by a Florida company would escape garnishment; such is not the intent of the statute.

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

Perfection of Equitable Lien Or Constructive Trust

A collection attorney from outside Florida called me about enforcement of an equitable lien on property. He obtained a judgment from a Florida court against a Florida debtor declaring that the creditor had an equitable lien on real property owned by the debtor and that the debtor held title in constructive trust for the creditor. The attorney wanted me to send him a form for perfecting his lien and trust.

As far as I know, there is no separate form for recording or perfecting a court order which declares an equitable lien. I suggested that the attorney record a certified copy of the court order in the county where the property was located, or alternatively, that he record some form of notice of equitable lien or trust which references the court order. Let me know if anyone is aware of a better procedure to perfect an equitable lien or constructive trust on real property.

Of course, if the debtor’s property was his homestead (its not in this case) the debtor may have asserted homestead defenses against the lien and trust.

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

When Does Writ of Execution Expire?

Creditors enforce money judgments by getting a writ of execution from the court allowing them to levy on a debtor’s assets. I received an email from a Blog reader which puts forth an interesting argument that a creditor’s writ of execution is good only for one year. Rather than summarize the argument, I will publish the entire email below for consideration.

The email received is as follows:

"A couple of years back two Florida lawyers wrote this Bar Journal article in which they argued that Florida Judgments could be executed on forever:
http://www.floridabar.org/DIVCOM/JN/JNJournal01.nsf/76d28aa8f2ee03e185256aa9005d8d9a/079d4a7ab47ebb2b85257029006f2e54?OpenDocument&Highlight=0,Judgment*
They based their argument on the 1967 repeal of a 20 year limitation statute that was never replaced (although courts have been acting as though it was still there).

Here's a kooky thought for the day: Florida executions may be limited to one year as follows,

"Dormancy. At common law, because the law presumed that a judgment would be satisfied within a year and a day of its entry, it became dormant on the 366th day. The Florida Legislature, by limiting “actions on judgments” to five and 20 years, has in effect said that after the running of those time periods the judgments are “dormant” and cannot be used to create new judgments."

IMHO, it's quite possible that at least with respect to executions, Florida reverted to common law, and now judgments might be only subject to executions for one year.

The article's authors say:
"The legislature must have known that the statute it was repealing had been interpreted to place a 20-year lifetime on executions. It repealed that statute and to this day has not replaced it with a statute or court rule limiting the time within which the execution option must be exercised. The courts are not permitted to judicially enact a statute about which the legislature has clearly spoken, even by its inaction."

So they believe that Florida judgments can be executed on forever. I say it's more plausible to say they can only be executed on for one year. In the absence of a statute, the common law applies.

I don't believe anyone has made this argument yet, but what else can apply in the absence of a specific statute? Would the Florida Supreme Court have to find that "emanations" from the statutes that establish a 10 year and 20 year limit for liens on personal and real property establish a limit? If so, which period would they choose and why? "

Continuing Writs of Garnishment in Florida

Occasionally, I get questions from creditors trying to collect judgments in Florida. Some of the questions are relevant to asset protection planning. Here’s one. An out of state creditor had a judgment against a Florida resident who owned rental real property in Florida. The creditor wanted to see if he could garnish the tenants’ rent payments. The creditor wanted to know if he could get a continuing writ of garnishment against the tenants so that each month the tenants would sent their rent payment to the creditor instead of their debtor/landlord.

Florida law permits continuing garnishment of wages. Creditors cannot get continuing garnishments of any other money such as rents, accounts receivable, or promissory notes. Other than wages, a creditor is only entitled to garnish what money is owed to the debtor at the time of the garnishment. Future receipts cannot be garnished (except wages). In this case, the creditor’s garnishment of the tenants will only attach to rents currently owed to the landlord. Future rents must be paid to the landlord unless the creditor serves a new garnishment when the future rents become due. In theory, the creditor would have go serve new garnishments on the first of each month to get that month’s rents.

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

Equity Reduction Plan

I received an email inquiry about whether “equity reduction plans” are an effective asset protection technique. The mail described these plans as a version of equity stripping . In the equity reduction plan someone puts a friendly mortgage or lien on the debtor’s property but no money actually changes hand. I inferred that the tool is supposed to place a priority lien on the property to a friendly creditor without having to actually find or obtain enough cash to fund a lien large enough to cover most of the property equity.

I never heard of an equity reduction plan. I don’t think the plan as described will protect property because the mortgage/lien is essentially bogus. The conveyance of a lien or mortgage could be attacked as a fraudulent conveyance of an interest in property without actual consideration. . A relatively unknown Florida statute, Section 726.201 pertains to fraudulent loans that may apply to the equity reduction plan.

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

Garnishment of Florida Bank Account In Another State

A Florida man opened a wage account at a local branch of a large national bank in which he deposits only his salary. The man is married and head of household. A creditor got a judgment against the same man in California. The creditor did not yet domesticate the judgment in Florida. The creditor garnished the account at a California branch of the same bank. California law does not provided unlimited protection from wage garnishments and does not protect wages deposited in bank accounts. Is the Florida debtor’s wages protected from garnishment in California.

I’m not sure. I spoke with a very good collection attorney, and he is not sure. There is a Florida statute that says bank accounts opened in any Florida bank will be governed by Florida law unless otherwise specified in the depositor’s written agreement with the bank. If the debtor’s banking agreement is silent on this issue then his Florida protection against wage garnishment would apply. But the national bank may have an agreement that specifies which state’s law is applicable to deposits in branches all over the county. Such contract provision makes sense for the bank in order to consolidate its legal actions with its depositors under a single legal code.

In either event, the debtor will have to file a motion in California to dissolve the garnishment. A Florida court will not likely take jurisdiction over a Florida judgment.

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

Asset Protection of Professional License

A client has a professional license in Florida. The license is a valuable asset to the client. The client asked whether his judgment creditors can levy on his license. The answer is no. Professional licenses are personal to the licensee and are not assignable. The judgment creditor cannot have the license put in the creditor’s own name nor can the license be sold to anyone other than the licensee. The debtor’s license has no value to anyone other than the debtor/licensee. Other licenses, such as liquor licenses, are subject to execution and levy because these licenses not personal.

Florida Judgments Collected in Other States

A Florida resident wrote a comment asking about the effect of a Florida judgment in another state with a short statute of limitations on judgment collection. Florida judgments are enforceable for 20 years. The reader stated that the other state had a 4 year statute of limitations on collection of judgments. What happens to the judgment if the debtor moves from Florida to the other state?

The Florida judgment is still effective for 20 years. The Florida judgment cannot be collected against the debtor or his property in the other state. The creditor can domesticate the judgment in the new state of residence, and the creditor would then have 4 years to enforce the judgment in the other state. The debtor’s move to another state, or the creditor’s domestication of the judgment in the other state, does not affect the Florida judgment.

Wage Garnishment To Collect Student Loans

A man called me concerning collection of an education loan. The caller had defaulted on payment of a large education loan, and the government had turned over collection to a private collection firm and its attorneys. The collection firm threatened to garnish the caller’s wages. The caller explained that he supported his spouse and that he was head of household. Initially, I told him that his wages were protected from garnishment by Florida Statutes because of his head of household status. When I looked into the matter further I discovered that there are federal laws and regulations concerning collection of student loan. These laws specifically permit wage garnishment, and they state further, that the governments garnishment rights supercede state law regarding wage garnishment. I found cases in other states which said that the federal government’s right to collect default student loans preempted the state’s garnishment protections. It would appear that the federal government can garnish the wages of a Florida head of household to collect student loan debt. Please email me if someone is aware of contrary law.

Garnishment of Charity's Bank Account

Creditor obtained a judgment against a charitable organization which had registered with the IRS as a 501(c)(3) organization. The creditor garnished the charity’s bank account. A representative of the charity asked me if the garnishment was legal because the charity’s bank account contained gifts from donors who understood their donation would be used for charitable purposes.

Without researching the issue I responded that the garnishment was proper assuming it was conducted according to the statutory procedures for garnishment. Florida statutes include no exemption for charitable organizations and no exceptions from garnishment for funds donated with charitable intent to an organization.

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

Aggressive Creditor Collection Tactic

Some creditors are smart; some are devious, and others are both smart and devious. Here is an example of the latter type of creditor from an inquiry I received this past week. Creditor files a lawsuit. Defendant hires an attorney to defend the lawsuit. The creditor wins a large judgment against the defendant. When creditor tries to collect the judgment he finds that the defendant has no collectible assets. Creditor tells the defendant that defendant’s attorney “screwed up”, and that absent the negligence of defendant's attorney the creditor states that the defendant would have won the case. This makes the debtor/defendant angry at his attorney so he sues attorney for malpractice. The attorney has malpractice insurance. After the suit is filed the creditor did one of the following ( it wasn’t clear from conversation) : the creditor either levies upon the defendant’s cause of action against his own attorney or any insurance proceeds therefrom, or he joins forces with defendant to help fund and prosecute malpractice action against defendant’s attorney in exchange for a share of insurance recovery. The creditor now has the attorney’s insurance policy as a source of money to recover what he could not otherwise recover from the judgment proof defendant.

This story illustrates an important lesson of asset protection. Never assume your creditors or their attorneys are stupid, lazy, or moral. This is an example of a very clever strategy by a creditor to turn an uncollectible debt into a cause of action against a new defendant backed by a significant insurance policy available to pay claims. Debtors trying to defend collection of a judgment must always be vigilant. The debtor must try to anticipate and prepare for the most aggressive collection tactics. If you relax your asset protection effort you may find yourself unable to repel the type of aggressive collection tactics illustrated by this example.

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

Debtor's Liability To Pay Creditor's Attorneys Fees In Collection of Judgment

A frequent asset protection question is whether engaging in a transfer of assets later found to be a fraudulent conveyance subjects the debtor to an award of additional damages. Neither the Florida Statutes, nor case law, provides that a creditor can add damages to the amount of its underlying judgment for damages because the debtor attempts to transfer or convert assets to avoid collection of the judgment. On the other hand a relatively unknown statute provides that a fraudulent conveyance can trigger a creditor’s right to collect attorneys fees.

As a general rule, a creditor cannot collect attorneys fees spent to collect a money judgment. However, Florida Statute 57.115 provides that a court may, but is not required to, award attorney fees a creditor incurs in connection with execution on a judgment especially when the court finds the debtor attempted to avoid or evade payment of the judgment. A fraudulent conveyance after or soon before a judgment is entered provides a good basis for the creditor to seek attorneys fees to undo the fraudulent conveyance and to collect the money judgment.

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

Proceedings Supplementary

Occasionally, I will help creditors collect a judgment from debtors who are trying to hide assets. Working for the “dark side” once in a while helps me design better asset protection plans because I can see the collection process from a creditor’s vantage point.

When a debtor has made fraudulent transfers or conversions to evade collection, I find that one of the most effective collection techniques is a “proceedings supplementary” under Florida Statute 56.29. The statute provides that upon the creditor making a motion the court may order the debtor to appear in court and testify under oath before a judge or magistrate. If upon examination it appears that within a year before service of process the debtor transferred money or property to a spouse, friend or relative the debtor must prove at the hearing that the transfer was not made to defraud creditors. Friends or family members who may have received fraudulent conveyances may be called as witnesses. If the court concludes that there has been a fraudulent conveyance the court shall order the sheriff to take possession of the property conveyed. Costs and attorneys fees may be taxed against the debtor.

I have found that debtors who attempt to evade or partially answer questions at a deposition are more honest and straight forward when testifying in court when the judge has the right to order the sheriff to immediately repossess property from the hands of the debtor’s family members or friends who were the recipients of his fraudulent conveyances. In addition to a proceeding supplementary the creditor can file and serve upon the debtor’s fraudulent transferees a fraudulent conveyance complaint naming the recipient family members and friends as defendants. Potential debtors need to understand the weapons at the disposal of skilled and aggressive creditor attorneys.

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

Creditor's Receivership Of Family Partnership

A creditors rights to collect money from a partnership interest or LLC interest are limited by statute to a charging lien against distributions to the partner/member. A client explained that one of his creditors has asked a court to appoint a receiver over his family limited partnership for the purposes of collecting partnership assets and enforcing a charging lien against the client’s partnership interest. The family partnership was formed outside of Florida and the motion for receivership is being litigated in the foreign state where the partnership is formed. The foreign state in question has charging lien remedies similar to Florida laws.

I am not aware of any Florida case which has considered a creditor’s rights to have a receiver appointed over an LLC or partnership owned by a debtor. To the extent the purpose of the receivership is to assist the creditor’s collection efforts the receivership may constitute a collection remedy beyond the permitted charging lien remedy. On the other hand, the creditor might get a receiver appointed if he could show that the partnership is distributing all its assets in the face of an immanent charging lien or that the partnership has disparate assets which the general partner is unwilling to either disclose or assemble.

Another important issue is the receiver’s compensation. Normally, receivers are compensated from assets of property under their receivership. A receiver over a partnership or LLC could eat up the partnership/LLC assets by paying himself fees. The expenses of the receivership would pressure the debtor to settle the debts. A debtor would want a court to impose the expenses of receivership in the creditor who is asking for the receiver arguing that receivership fees at the behest of the creditor amounts to an attack on partnership assets in excess of the limited charging lien remedies provided by statutes.

In this particular instance the Florida resident had chosen to establish asset protection entities in foreign jurisdictions because he thought the foreign states offered better legal protections. Now, the Florida debtor must defend the receivership action outside of Florida, and he must hire a separate law firm in the foreign state to handle legal matters in that state. In fact, Florida’s protection of partnership interest and LLC interest is second to none. Florida’s protections were enhanced by a recently revised partnership statute.

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

Can Federal Agency Freeze Exempt Assets?

I have previously written on this blog that Florida asset protection planning is often less effective against actions by Federal agencies such as the IRS, FTC etc. Federal agencies often have statutory authority to take preemptive collection actions against targets of their regulatory actions beyond the powers afforded commercial creditors in Florida state courts.

I received an inquiry from a reader who was involved in a legal dispute with the Commodities Future Trading Commission (CFTC) before a federal court in a state other than Florida. The reader stated that prior to their getting a court judgment the CFTC had frozen financial accounts in Florida owned by the reader and his wife as tenants by entireties (TE). The reader’s wife was not a party to the CFTC action. TE assets are immune from civil judgments against either spouse individually under Florida common law. The reader questioned how the CFTC could freeze his protected TE account in Florida before the CFTC even had a final judgment in the CFTC proceeding.

The reader said his CFTC attorney told him the agency had authority to freeze bank accounts. The issue is whether this or any other Federal agency can freeze an account preemptively which account under Florida law is not owned by the defendant and is immune from civil process. The reader did not retain me to research the issue so I don’t know if there are cases on this point, and therefore, I cannot offer now a definitive answer.

The point of this post is to illustrate to enforcement and collection power of federal agencies. Compared to creditors in typical civil disputes federal agencies have more remedies, more powers, and are usually more aggressive in pursuing defendants’ assets even before they prevail in their federal litigation. Florida civil courts rarely freeze defendant assets prior to judgment, and even then, the Florida courts would respect Florida exemption law (except in some cases of obvious fraudulent conveyance). Federal agency litigation poses more serious and immediate threat to otherwise exempt assets.

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

How Long Does A Judgment Last?

I received a call from a doctor who had his checking account garnished by a creditor who obtained a judgment over 10 years ago. The caller had found by his own research that judgement liens expire in 10 years, and he asked how the creditor could apply his judgement which is now over 10 years old to garnish a bank account.

The caller confused judgments and judgment liens. A judgment lien is the recording of a certified judgment with the Florida registry. The recording gives the judgment holder priority over judgments subsequently recorded. Any proceeds from the forced sale of debtor’s property subject to the judgment will go to pay priority judgment liens first, and money left over, if any, is applied to the junior liens. Property such as homestead is not subject to judgment liens. After 10 years the first recorded judgment lien loses its priority standing

Judgments which are not recorded as liens, or are recorded as junior liens, are still valid judgments which can be executed against the debtor’s property. A judgment creditor may garnish the debtor’s bank accounts even if the creditor has not recorded its judgment or has recorded in second place. Florida Statute 55.081 states that judgments are good for 20 years. Therefore, 10 years after this caller’s creditor had obtained a judgment and recorded the judgment the creditor may have lost the priority of his recorded lien, but the judgment was still in effect and could be used to obtain a writ of garnishment.

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

Dealing With Collection Agencies

Many clients asked me how they can deal with consumer creditors such as credit card companies when they are delinquent in payments. I had a new client this week who seemed to be very successful in getting creditors to stop calling and in negotiating favorable settlements for delinquent credit card debts. They settled several debts for less than 50% of the balance, and they had eliminated most collection agency harassment. I asked them why they had been successful and where they learned their tactics. The clients said they read a book called “How to Settle Your Debts” which they found and purchased on Amazon.com. They said the book clearly explained how consumers can best deal with collection agencies and how to negotiate favorable settlements which included elimination of adverse reports to credit agencies. I found the book on Amazon for $15.00. It’s a new book having been published in September 2004. ; I have not read the book, but based on these clients’ experience, many people could benefit from whatever advice the book offers.

Using Receivership to Collect Judgement

One of the biggest asset protection mistakes is underestimating the skill, intelligence, and resolve of creditors and their attorneys. My representation of a current Florida client provides a good example of creditor creativity. My client had a judgment entered against him personally and his defunct corporation in Dallas, Texas where the corporation was doing business. The debtor/ client at all times was a Florida resident. The creditor attorney recorded the judgment in Houston, Texas and applied for a receivership over the insolvent company and the debtor. Florida has not law permitting receiverships over people. But, Texas Civil Practice and Remedies Code Section 31.002 expressly permits a creditor to put an individual in receivership, and as I found out, courts in Houston, particularly, create personal receiverships quickly upon the request of any creditor. As a result, the creditor now has appointed a receiver over the person of the debtor. A receiver is an officer of the court who takes over whatever rights and powers the debtor has. The receiver is likely to come to Florida and try to order the debtor to turn over all of his property to the Texas court.

This tactic raises several novel legal issues: For example, does the Texas receiver would have any powers within the State of Florida, or does he have to request appointment of a Florida ancillary receiver ?; can the Texas receiver as officer of Texas court apply exemption law of Texas to Florida debtor? ; can the Texas receiver compel Florida debtor to appear in Texas court proceeding initiated by the receiver?. These and other unique legal issues may be addressed in this case which may test the effectiveness of a creative collection strategy by a creditor attorney