While people in financial trouble often resort to bankruptcy to protect their assets and stop collection harassment, new federal laws take effect later this year that will limit that option. Florida law provides Florida residents with other options.
Following is a brief description of the major exemptions and other ways Florida residents can protect their assets:
1) HOMESTEAD PROPERTY – the Florida Constitution provides that the homestead property of Florida residents is exempt from attachment by creditors. This protection does not apply to mortgages or liens that are recorded against the homestead or most contents in the homestead. Only homestead property one-half (1/2) acre or less inside a municipality and 160 acres outside a municipality is protected. The new federal bankruptcy law will restrict this exemption for some future Florida residents.
2) JOINT MARITAL PROPERTY - real estate, bank accounts, investments and other property owned jointly by a husband and wife as “tenants by the entirety” cannot be attached to satisfy the debts of only one spouse. This protection may not extend to taxes owed the Internal Revenue Service or to jointly owned property that does not qualify as tenants by the entirety or includes additional joint owners.
3) RETIREMENT PLANS AND IRA ACCOUNTS - both federal and Florida law protect a debtor’s retirement account assets. This protection may be lost if the retirement plan is not qualified under federal law or has been established to defraud creditors.
4) ANNUITIES AND LIFE INSURANCE - Florida law provides Florida residents with creditor protection for the cash value held in annuity contracts and life insurance policies. Death benefits paid on the life of a debtor are also exempt. This protection may not apply to the annuity and life insurance beneficiaries themselves.
5) WAGES AND WAGE ACCOUNTS – both federal and Florida law provide some protection from garnishing the wages of a Head of family. Certain types of wage only accounts established in financial institutions may also be protected.
6) LIMITED LIABILITY COMPANIES AND PARTNERSHIPS – Compared to corporation stock or general partnership interests, attachment of a Debtor’s interest in these type of legal entities is restricted under Florida law and in many other states.
Readers are cautioned that the asset protection options described above are in general terms only. Exceptions and pitfalls exist that will be discussed in a future article. Readers who are debtors and creditors alike are encouraged to recognize these options and to work together toward settlements that avoid bankruptcy.
