United States federal agencies will sue individuals for violation of federal rules and regulations. Agencies can refer some cases to the Department of Justice for criminal prosecution, but more often, agencies sue people and companies for civil damages and fines for regulatory violations. A frequent example are Federal Trade Commission suits against telemarketer firms or violators of anti-trust laws.
The Federal Debt Collection Procedures Act (Chapter 176 of Title 28 of the United States Code) provides the government the tools to collect debts owed to government agencies. The Act has separate subchapters dealing with pre-judgment remedies, post-judgment remedies, and the reversal of fraudulent transfers. Some agencies, such as the IRS or the SEC, have statutes that provide enhanced collection procedures for debts owed to their agency.
The U.S. government’s post-judgment collection tools are comparable to state law collection remedies and include judgment liens on real property, garnishment of accounts and debts, and levy on personal property.
A defendant debtor may assert property exemptions available under applicable state law in the jurisdiction where the debtor has resided for the most recent 180 day period. Federal agencies may not take property exempt under Florida statutes or the Constitution including homestead property. Note that the defendant must have resided in Florida for 180 days to assert Florida exemptions in federal court under the federal collection statute whereas in state court civil cases there is no minimum residency threshold. Florida exemptions apply immediately upon Florida residency. The law specifically mentions the exemption of tenants by entireties property to the extent that the applicable state law protects T by E assets from the debts of one spouse. Tenants by entireties is not an “exemption” and the federal statute does not impose a 180 time limit for entireties asset ownership.
The debtor must affirmatively claim property exemptions by filing an exemption statement with the court. The debtor’s filing of an exemption statement stays further government actions to dispose or take possession of the property until the court considers the exemption claim. Moreover, the government may not seize or interfere with property the government has reason to know is exempt even if the debtor has not yet filed an exemption application.
U.S. agencies may additionally pursue a defendant’s property even before the government’s claims are adjudicated in court. Subchapter B of the Act provides specific pre-judgment remedies including attachment, garnishments or appointment of a receiver. The government may apply for attachment any time after it files its initial complaint. The Act requires that the government allege in a sworn statement at least one statutory justification to attack a defendant’s assets before judgment. These criteria include, for example, the allegation that the defendant is about to leave the jurisdiction of the court, or is about to fraudulently transfer or fraudulently covert assets with the effect of hindering or delaying the United States’ collection.
Pre-judgment remedies are available in most states, including Florida. What makes the U.S. government’s pre-judgment remedies so powerful is the absence of a bond requirement. Under Florida law a creditor that seeks to attack a defendant’s assets before getting a judgment must post a bond to compensate the debtor in the event the debtor prevails in the litigation or the assets are found to be exempt. The cost of a pre-judgment collection band is significant. The costs plus risks deter most creditors from seeking immediate attachment or receiverships against civil litigation defendants.
The United States and its agencies are exempt from a bond requirement associated with pre-judgment collection. Section 28 U.S C. 3101(C)(3) states that no bond is required by the United States as a condition of pre-judgment actions against a defendant’s assets. For this reason, federal agencies will most often seek immediate freeze of a defendant’s assets upon filing a civil action. It is the threat of pre-judgment collection that makes difficult asset protection planning against federal regulatory litigation.