“Judgment – Proof” is a slang term used in the consumer and debt collection industry, but what does it really mean? The purpose of this article is to explain the meaning behind the term and how a borrower might use it to scare away creditors. The most common analogy is “you can’t get blood from a stone.”
What is really meant by this phrase is that all of the consumer’s assets and income are exempt from collection or repossession by creditors. Some of the more common exclusions under Florida law include:
- Homestead Exemption
- Tenancy By the Entireties
- Head of Household Wage Exemption
- Unemployment Compensation
- Disability or Social Security Compensation
- Retirement Accounts (IRA & 401k)
- Life Insurance Policies & Annuity Contracts
- Pension Accounts
- Qualified Tuition Programs and Medical Savings Accounts
- “Wildcard” Personal Property Exemption
Florida has the best homestead protection in the Country. Under Florida’s Constitution (Article X, Section IV) and Florida Statutes (Chapter 222) the only creditors who can force the sale of a debtor’s primary residence are: (1) the local county tax collector, (2) banks who have a mortgage against the property, (3) contractors who have performed work on the property, and (4) the IRS. Thus, credit card judgments, lawsuit judgments, medical bills, student loan debt, mortgage deficiencies related to other properties, and most other types of unsecured creditors cannot foreclose a primary residence to force the payment of debt owed to the creditor. There is a difference between “homestead” for purposes of asset protection versus property tax reduction. You can find an article discussing the difference between the two here.
Tenancy By The Entireties Property
Tenancy by the entireties property, or the marriage exemption, is created when property is held “as husband and wife.” Entireties property (or TBE) is exempt from creditors of only one spouse. In order to qualify for TBE protection: (1) the property must be jointly owned by a married couple, (2) the husband and wife must have identical interest in the property; and (3) the interest must have originated simultaneously in the same instrument. Thus a car purchased by a husband and wife would be exempt from the creditors of the husband alone. Be careful, however, because if the husband owned the car prior to the marriage and simply added his wife to the car title after the wedding, TBE protection might not apply because the interest must be created “simultaneously in the same instrument.”
Sources of Income
The Head of Household exemption (FL Statute 222.11) protects a head of family whose take-home pay, after deductions for taxes, insurance and other required deductions, is less than or equal to $750 a week. The “head of family” is the person who provides more than one-half of the support for a child or other dependent. The classic example is situation where one spouse works and the other stays home to raise the children. In marriages where both spouses make nearly equal pay, head of household status will be difficult to prove.
Unemployment Compensation (222.15 and 222.16) and Disability or Social Security Benefits (222.18) are also protected from creditors under Florida law.
Florida law also shields retirement accounts such as IRA and 401k plans (222.21), the cash surrender value of life insurance policies and annuity contracts (222.14), proceeds paid by a life insurance policy (222.13), pension accounts (222.21), and qualified tuition programs and Health Savings Accounts (222.22).
Personal Property “Wildcard” Exemption
In addition to the unlimited homestead exemption, the Florida Constitution allows Floridians to shelter up to $1,000 of personal property. This is a wildcard exemption because it applies to anything and everything – clothes, jewelry, tools-of-the-trade, checking and savings accounts, household furniture and fixtures, etc. – so long as the value of all property combined is less than $1,000. In addition, if the borrower does not own a primary residence, the wildcard exemption is increased an additional $4,000 by FL Statute 222.25. Thus, a renter can exempt up to $5,000 of miscellaneous personal property.
There are few things more emotionally intimidating than being pursued by debt collectors and creditors. While bankruptcy provides a fresh start, sometimes it is a bad option. If the debtor has assets that are all immune under various Florida exemptions, it may be a better strategy to “show your cards” rather than try to bluff. If the debtor has no assets that can be collected or repossessed, the debt collector may determine that borrower to be “judgment proof” and simply leave them alone to pursue other debtors that have assets.
– Shawn M. Yesner, Esq.
Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate law firm that provides peace of mind when creditors are looming. We assist clients with debt settlement, bankruptcy Chapter 7 and Chapter 13, short sales, loan modifications, and foreclosure defense, for clients in Tampa, Westchase, Carrolwood, St. Petersburg, St. Petersburg Beach, Treasure Island, Medeira Beach, Reddington Beach, Kenneth City, Gulfport, Seminole, Clearwater, Clearwater Beach, Oldsmar, Dunedin, Safety Harbor, Palm Harbor, Lutz, New Port Richey, Trinity, Port Richey, and other areas that comprise the greater Tampa Bay area.