One of the most recurring issues that I deal with in speaking with people about personal finance is the question of how to protect what they have. You may have a lot or a little. In either case, you should take certain simple steps to protect yourself from attacks by creditors. Creditors can include businesses that you have taken loans from, medical or other service providers, or someone that fell on your front porch while you were not home (and plans on suing you). The point is that even if you are thinking that you don't currently have any debt issues, its impossible to see what may lie around the corner.
Certain categories of income are protected from creditors in Florida. The most common among those are: Social Security, Disability Income, Worker's Compensation, Unemployment Compensation, Retirement and Pension benefits, life insurance proceeds, and the wages of a head of household.
A head of household is defined as anyone who provides more than 50% of the support for a dependent. A dependent can be a spouse, a child, or any dependent relative. If you are the major wage earner in your family, then you most likely qualify as "head of household." See Fla Stat. 222.11
The law safeguards these sources of income from seizure or garnishment by creditors. Just because income is legally protected though does not mean that aggressive creditors and their lawyers will not try to take it from you. I speak with people every week who have had wages garnished or bank accounts seized when they could have taken simple and easy steps to protect themselves and their money.
The most basic and easy method of assuring that legally protected income in a bank account will receive the protection that it deserves is to make sure that it is not combined with unprotected money. Simply put, this means that if you receive any income in the categories listed above, deposit it in a bank account that is solely for that income.
In other words, if your income comes from Social Security, deposit that money in an account where you do not deposit any other miscellaneous type of money such as gift money or funds received from selling property. That account with only Social Security (or other specifically protected income ) may be attacked by creditors, but you will have the right to bring the issue before a judge and win the release of your protected funds.
When you mix protected and unprotected funds together in an account, it allows a creditor to argue that there is no longer any way to determine which funds are protected and which are available to creditors. Many judges will agree with this argument and allow the entire account balance to be taken for collection.
Follow this rule of segregation of funds, and you may save yourself a great deal of regret and hardship later on.
Can Creditors Seize Personal Property
Assuming that you have not given the creditor a lien on any specific property, Florida law allows a debtor to protect a certain amount of personal property from the claims of creditors. If you own a home in Florida, the protection that you are allowed is $1000.00 per person. In other words, if your belongings are worth $2000.00 you can designate one half of the items as exempt. The other half would be available to creditors to satisfy their judgements and they can obtain a court order for seizure of such items. If, however, you do not own a home in Florida, then the protection that you are allowed for personal property goes up to $5000.00 per person. There is also an additional $1000.00 per person automobile exemption that you can apply to any equity that you have in an automobile, motorcycle, or trailer.
Keep in mind that the above assumes that the creditor has sued you and obtained a judgment stating that you owe them money. Without a judgment, the creditor has no right to seize any of your property. There is however, one notable exception. The lender that financed your automobile does have the right of repossession as soon as you fall behind on payments, and they are not required to obtain a judgment or any kind of court order
Keep in mind that the above assumes that the creditor has sued you and obtained a judgment stating that you owe them money. Without a judgment, the creditor has no right to seize any of your property. There is however, one notable exception. The lender that financed your automobile does have the right of repossession as soon as you fall behind on payments, and they are not required to obtain a judgment or any kind of court order
Ending Driver's License Suspension Through Bankruptcy
I often get asked whether a bankruptcy can help to get a driver’s license back after it has been suspended because of a lawsuit for damages arising from the use of an automobile. Under Florida’s Financial Responsibility law (Florida Statutes, Chapter 324) judgement creditor holding a judgement against a debtor arising from the use of an automobile in Florida can apply to the Department of Highway Safety and Motor Vehicles for the suspension of the debtor’s driver’s license until the judgement for damages is paid in full. The loss of driving privileges can mean the inability to get to work and take care of other necessities of modern life which can cause a rapid downward spiral for many people. Because the suspension of the driver’s license results from the existence of the debt, eliminating the underlying debt through bankruptcy also eliminates the basis for the license suspension. Once the debt is discharged in bankruptcy, the DHSMV is required by law to issue the debtor a new license. Be aware, however, that a judgement arising from an auto accident in which the debtor was charged with DUI will not be discharged in bankruptcy. Therefore, a bankruptcy would not result in new driving privileges under those circumstances.
Transfers of property before a bankruptcy
One of the most commonly asked questions is: Why can’t I just transfer the title to my car (or other significantly valued property) to a relative (or other person) before I file for bankruptcy so that I will not risk losing it to creditors in my bankruptcy case?
A transfer of ownership/title for this reason, done at a time when you are insolvent ( which most people considering bankruptcy are) is generally considered a "fraudulent transfer" and will result in one or more undesirable consequences.
If the transfer is not disclosed in your bankruptcy petition, the matter may be referred to the United States Justice Department for criminal prosecution. A conviction for Bankruptcy Fraud can and often does result in a prison sentence. Another consequence of a fraudulent transfer is the likely request of the Bankruptcy Trustee to have the court deny the debtor any discharge of debts in the bankruptcy case. Upon proof of a fraudulent transfer, most courts will grant this request. A third common result of a fraudulent transfer is for the court to order that the person who received the property turn it over to the Trustee for liquidation (ie., to be auctioned with the proceeds going to creditors).
The bottom line is: DON'T DO IT! Its not worth it. In most cases, debtors do not lose any property. There are, however, cases in which not all of a debtor’s property can be protected. If the value of the property that may be lost in the bankruptcy is far less than the debt being erased, the benefit of filing and receiving a release from crushing debts will be well worth the deal.
A transfer of ownership/title for this reason, done at a time when you are insolvent ( which most people considering bankruptcy are) is generally considered a "fraudulent transfer" and will result in one or more undesirable consequences.
If the transfer is not disclosed in your bankruptcy petition, the matter may be referred to the United States Justice Department for criminal prosecution. A conviction for Bankruptcy Fraud can and often does result in a prison sentence. Another consequence of a fraudulent transfer is the likely request of the Bankruptcy Trustee to have the court deny the debtor any discharge of debts in the bankruptcy case. Upon proof of a fraudulent transfer, most courts will grant this request. A third common result of a fraudulent transfer is for the court to order that the person who received the property turn it over to the Trustee for liquidation (ie., to be auctioned with the proceeds going to creditors).
The bottom line is: DON'T DO IT! Its not worth it. In most cases, debtors do not lose any property. There are, however, cases in which not all of a debtor’s property can be protected. If the value of the property that may be lost in the bankruptcy is far less than the debt being erased, the benefit of filing and receiving a release from crushing debts will be well worth the deal.
Home Equity Loans. Life Line or Anchor?
Many of the people that I consult with are deep in debt and are without sufficient income to pay the debt off regardless of how much they sacrifice or attempt to cut expenditures. While we could probably all do with a little less here and there, many expenses are genuinely necessary to maintaining home, health, and job security. First and foremost of those expenses for homeowners is the monthly mortgage payment. Fall behind in your mortgage and you will face hefty late fees and penalties. Fall far enough behind and you will be in forclosure and facing the loss of your home and any equity that you have worked for.
One of the worst missteps that many people in financial distress make is to take out a home equity loan to pay off unsecured credit card debts, signature loans, medical debt, or other general unsecured debts. While a home equity loan at a fair rate of interest can be a sound financial management tool, these loans should be approached with great caution and critical analysis. The title "home equity loan" sounds friendly enough. What it is, however, is simply a mortgage. If you already have a mortgage, it is a second mortgage. Like any mortgage, if you are unable to make the payments as they come due, the lender may forclose and take your home away from you.
Before you take a home equity loan be sure that your future income is rock solid and you have carefully analyzed your budget to determine that you can pay your current mortgage, all other necessary expenses, and the home equity payments without creating a financial hardship. Be sure to also add in the expenses that are not regular in nature, but crop up regularly in everyone's life. These include but are not limited to necessary car and home repairs, expenses of illness for family members, deductible payments for insurance claims, etc.
Finally, remember that in the State of Florida you cannot lose your home because of delinquent credit card, medical debt, auto repo deficiencies, or unsecured signature loans. These types of debts can also generally be eliminated in bankruptcy. Once you convert these types of debts into a home equity loan (mortgage), however, you can lose you home if you are unable to pay the debt back.
One of the worst missteps that many people in financial distress make is to take out a home equity loan to pay off unsecured credit card debts, signature loans, medical debt, or other general unsecured debts. While a home equity loan at a fair rate of interest can be a sound financial management tool, these loans should be approached with great caution and critical analysis. The title "home equity loan" sounds friendly enough. What it is, however, is simply a mortgage. If you already have a mortgage, it is a second mortgage. Like any mortgage, if you are unable to make the payments as they come due, the lender may forclose and take your home away from you.
Before you take a home equity loan be sure that your future income is rock solid and you have carefully analyzed your budget to determine that you can pay your current mortgage, all other necessary expenses, and the home equity payments without creating a financial hardship. Be sure to also add in the expenses that are not regular in nature, but crop up regularly in everyone's life. These include but are not limited to necessary car and home repairs, expenses of illness for family members, deductible payments for insurance claims, etc.
Finally, remember that in the State of Florida you cannot lose your home because of delinquent credit card, medical debt, auto repo deficiencies, or unsecured signature loans. These types of debts can also generally be eliminated in bankruptcy. Once you convert these types of debts into a home equity loan (mortgage), however, you can lose you home if you are unable to pay the debt back.
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