Debt Collection Laws in Florida
Florida debt collection laws allow creditors to collect money damages a court has awarded the creditor in a court judgment. When a court finds that you owe someone money, the court will enter a money judgment against you in favor of your creditor for an amount plus interest. There is no judgment until the judge signs a document entitled “Judgment” or “Final Judgment.”
What happens after a judgment is entered against you?
When a judgment is entered against you, the judgment is not immediately effective. There is a 10-day period after the date of the judgment during which either party can request a rehearing. Rehearing requests are frequently denied, but if a rehearing is requested, the judgment is not effective until the motion for rehearing has been denied.
Obtaining a final judgment by itself does not provide any money to the creditor. Nor does the final judgment, by itself, take any of the debtor’s property. Judgment collection is the process by which a judgment creditor finds and takes the debtor’s property to pay the judgment. Collecting a judgment is usually referred to legally as the execution of a judgment.
In terms of Florida debt collection laws, effective asset protection planning requires an understanding of tools creditors may use to discover and take your non-exempt assets to collect judgments.
Florida judgment enforcement usually begins with the creditor asking the court to issue a Writ of Execution. A writ of execution entitles the creditor to take steps to collect the judgment.
Can You Become Judgment Proof?
Judgment proof is the state where a civil monetary judgment holder cannot collect from you any of your assets or income.
Does asset protection really work in Florida?
Evaluating the effectiveness of asset protection depends on having realistic goals and objectives. Asset protection will not make you judgment proof in Florida. An aggressive and skilled collection attorney can, with enough time and money, attack at least some assets of any debtor.
A realistic goal of asset protection is to make it more difficult for judgment creditors to levy on your assets, thereby increasing your negotiation leverage in settlement discussions. Therefore, a reasonable goal of domestic or offshore asset protection should be to position yourself in a substantially improved bargaining position with future creditors.
Being effectively judgment proof means protecting your assets and income to such a degree where it is very unlikely a creditor could collect any of your assets. While nothing is ever guaranteed, Florida debt collection law does allow people with judgments against them to get very close to becoming truly judgment proof.
Asset protection is all about understanding debt collection laws in Florida. Florida law governs which collection tools are available to a monetary judgment creditor. Becoming effectively judgment proof involves evaluating what exactly those collection tools can reach and then restructuring your finances so that those collection tools become ineffective.
Discovery in Aid of Execution
Discovery in aid of execution in Florida refers to how the Florida Rules of Civil Procedure give the judgment creditor many ways to find (discover) your assets which may be subject to execution.
A judgment creditor has broad power in terms of discovery in aid of execution in Florida. Generally, a judgment creditor is entitled to full financial information related to you and your spouse. Some ways a creditor can obtain this information include:
- fact information sheet
- request for production
If you are a judgment debtor, you should generally plan on a creditor being able to obtain full information about your finances through discovery in aid of execution.
Judgment Lien Certificate
Florida debt collection law allows a judgment creditor to obtain a lien of all the debtor’s personal property located in Florida by filing a judgment lien certificate with the Florida Secretary of State. Any subsequent sale or other conveyance of personal property remains encumbered by the judgment lien. Recording a certified copy of the judgment in any county creates a judgment lien on the debtor’s real property located in the same county, other than homestead property.
Out of State Judgments
A creditor’s judgment against a Florida resident obtained from a court in another state or another country is referred to as a foreign judgment. A creditor may collect on a foreign judgment from another state by following procedures set forth in Florida Statute § 55.501 to domesticate the judgment. Judgments obtained in foreign countries are domesticated under Florida Statute §55.601.
The foreign creditor must first record a certified copy of the foreign judgment in Florida. When the foreign judgment is recorded, the clerk of court is required to notify the debtor. The debtor then has 30 days to contest the validity of the judgment. There are limited reasons available to contest the recording of a foreign judgment (for example, lack of jurisdiction or fraud). The debtor cannot retry the case on the merits of the foreign judgment.
A domesticated foreign judgment is enforced as a Florida judgment pursuant to Florida’s debt collection laws and rules. The creditor can enforce the domesticated Florida judgment for up to twenty years. The twenty year time limit runs from the date the judgment was issued by the foreign state’s court, not from the date of Florida domestication.
Execution and Levy
Debt collection defense often involves dealing with an execution and levy. Execution is a collection remedy used to obtain a debtor’s tangible personal and real property. Execution and levy are used to seize real estate, stock in corporations, and the debtor’s personal effects. Assets frequently subject to execution include the debtor’s automobiles, stock in private companies, and valuable home possessions. The creditor can execute against the debtor’s property in possession of a third party.
A creditor must identify in advance the debtor’s property subject to execution. The county sheriff executes the writ by physically seizing the debtor’s property. The sheriff then sells the debtor’s property at auction. The sheriff applies the sales proceeds, less expenses, to satisfy the judgment. Any preexisting liens on the property must be paid before any money is available to pay the judgment creditor. The debtor can bid for his own property at the auction.
Levy on Automobiles
Can a creditor take your car in Florida? Creditors frequently direct the sheriff to levy upon automobiles which a debtor owns free and clear. Taking the debtor’s car exerts pressure on the debtor to pay the judgment. Creditors typically do not levy upon automobiles subject to significant car loans and liens because few people will pay significant money to buy at auction a car subject to a lien.
Privately Held Businesses
Creditors can use execution and levy against shares of common stock the debtor owns in his own business. If the debtor states that his privately held corporation has not issued stock, or that the debtor has misplaced the stock certificates, the creditor can obtain a court order directing the corporation to reissue stock certificates. The creditor can direct the sheriff to sell the stock at public auction.
The creditor may not levy upon the debtor’s membership interest in a multi-member limited liability company. The creditor’s sole remedy is a lien on LLC profit distributions payable to the debtor. A multi-member LLC with a properly drafted LLC operating agreement in Florida can be especially difficult for a creditor to attack.
What Personal Property Can Be Seized in a Judgment?
Sometimes clients want to know what personal property can be seized in a judgment in Florida. A judgment creditor can try to seize a debtor’s home furnishings. Because a creditor must direct the sheriff to seize specific items of personal property, a creditor cannot get a blanket attachment against “all the stuff” in the debtor’s house. Creditors cannot break into a debtor’s house and grab property without court permission.
If the creditor identifies non-exempt assets within the debtor’s house, a court may issue a “break order” to assist the sheriff’s seizure of these assets. Some courts will issue break orders without advance warning to the debtor.
Florida’s homestead exemptions do not shield the debtor’s tangible personal property held inside the homestead from seizure.
Garnishment of Money
In terms of Florida bank account levy laws, a writ of garnishment is used to seize any property owed to the debtor by a third party. Garnishment is used against the debtor’s bank accounts, future wages and commissions, financial accounts holding publicly traded securities, and any debts or rights to money payable to the debtor. To garnish assets, a judgment creditor initially obtains a writ of garnishment from the clerk of court. The creditor then serves the writ upon the debtor’s employer, bank, financial institution, or other person obligated to the debtor.
The creditor is not required to provide advance notice to the debtor prior to serving a writ of garnishment. A garnishment writ notifies the third party that they must retain an asset or money owed to the debtor and to thereafter pay the money as the court shall direct.
Money subject to garnishment must be in the actual possession and control of the garnished third party. The money must be owed to the debtor without condition and the amount owed must be liquidated (fixed) in amount. In most instances, a writ of garnishment pertains to current debts and obligations owed to the debtor. Only debts owed to the debtor at the time the writ is served are frozen and subject to garnishment.
The debtor’s salary and wages may be subject to continuing writs of garnishment. A single writ of garnishment served upon the debtor’s employer garnishes all future non-exempt wages, salary, and commissions payable to the debtor. The garnishment continues in effect until the judgment is paid.
A creditor cannot get a continuing writ of garnishment against payments other than wages. For example, money payable by a company to a debtor working as an independent contractor, or rents owed to a landlord, are not subject to continuing writs.
Debtors have ways to fight garnishments. Florida debt collection law exempts some types of debts from garnishment. For example, wages payable to a head of household are exempt without limitation from continuing wage garnishments. Periodic payments due to the debtor from social security, annuities, and retirement plans also cannot be garnished in Florida.
Garnishment procedures are complicated and are strictly construed in Florida courts. Therefore, some debtors can defeat garnishments by finding procedural flaws in the garnishment writ and application.
How Creditors Find Assets
Florida debt collection laws provide judgment creditors numerous tools to find information about a debtor’s income and assets. After a creditor locates a debtor’s assets, the creditor can then use collection tools (such as garnishment and levy) to seize the asset or force its sale. More importantly, discovery of assets previously owned by the debtor provides the creditor clues about the debtor’s fraudulent transfers or conversions of these same assets to avoid collection.
A judgment creditor can use all the discovery tools made available to parties in general litigation. In general litigation, the Florida Rules of Civil Procedure give all participants tools to discover information about their opposing party’s case. The judgment creditor may use these litigation discovery tools to find assets subject to execution and levy.
These general discovery tools include requests to produce documents, written answers to interrogatories, and depositions under oath.
The creditor is permitted to ask detailed and extensive questions about the debtor’s financial affairs. For example, the creditor can ask about assets in which the debtor has any legal or equitable interest, including assets owned jointly with a spouse, family members, or business associates. Questions can be about the sale or transfer of assets. The debtor must answer questions under oath and penalty of perjury. The creditor can seek discovery directly from third parties such as an examination under oath of the debtor’s spouse.
Request for Documents
The debtor must furnish to the creditor all documents the creditor requests related to his financial affairs. Florida debt collection laws allow creditors to request copies of bank statements, check registers, cancelled checks, credit card statements, insurance policies, and tax forms. A creditor’s requests can include current documents and documents up to at least four years old and beyond.
The debtor is required to supply the documents requested which are in the debtor’s custody or control. The debtor does not have to provide documents that the debtor does not have or cannot easily obtain.
Debtor’s Financial Statement
When an individual borrows money to start a business, or personally guarantees a commercial loan to an existing business, the bank requires the individual to submit personal financial information and personal tax returns. In addition, lenders typically require individual borrowers or guarantors to periodically update their financial statements during the life of the loan and submit copies of annual tax returns. If a borrower wants to modify a loan to avoid default, the negotiation usually involves additional voluntary financial disclosures.
A lender will use your loan application and updated financial statements to discover assets if you default on the loan. After obtaining a judgment, the lender can garnish any bank accounts listed on your loan application and your financial statement updates without notice. The lender will record the judgment in counties where the debtor’s financial statements listed real estate ownership.
Cooperation Among Creditors
Collection agents who work for institutional lenders and large collection agencies develop personal contacts working in banks and other financial institutions. The creditor’s personal contacts are an excellent source of financial information about judgment debtors. Any contact person with access to a company’s computer records can quickly tell a collection agent whether the debtor has a financial account at its institution. The judgment creditor can then serve a writ of garnishment on any institution which reports an account of significant balance without notice to the judgment debtor.
Private investigators may perform asset searches as a service to judgment creditors. Some firms specialize in searching for bank accounts while other firms provide broader searches. Access to information over the internet has made asset searches easier and more accurate. Searches of debtors’ bank accounts will produce for the creditor a detailed description of the debtor’s financial accounts including account number, balance, and a history of deposits, checks written, and cash withdrawals. Search companies can also access similar information about securities accounts.
Private investigators have at their disposal sophisticated methods. For example, a private investigator can access your phone records. The investigator use reverse lookup tools to see whether the toll free calls are with financial institutions where you may have assets. Some creditors employ private investigators to verify if a debtor resides at the property the debtor claims as his exempt homestead.
Real Estate Ownership
Real estate deeds are filed in the county where the real estate is situated. Each Florida county maintains its own index of real estate ownership. In the past, if a person wanted to know whether a debtor owned real estate in a county, he would have to go to the county recorder of deeds and physically search through paper and microfiche records. Looking for real estate ownership in Florida’s 67 counties was practically impossible because creditors had to know in what counties a debtor might own real property before undertaking a manual search at the recorder of deeds office.
Nowadays, Florida counties have digitized their legal records so that property ownership is available by online search. Online property records are centrally linked to state and national databases. Instead of guessing where a debtor might own property, for a small fee a creditor can search real estate records throughout the state with a single query. Computer searches quickly provide the debtor’s property ownership and other information such as date of purchase, mortgages, and property value. The same property search can identify whether the debtor holds any mortgages on someone else’s real estate to secure a promissory note. If a creditor finds that a debtor is a mortgagee, the judgment creditor can proceed to garnish the underlying note and payment stream.
Florida debt collection laws also allow creditors to use public records to discover your business interests. Florida public records do not include or reveal a debtor’s ownership interest in any particular entity, but they do disclose if the debtor is an officer or director of a corporation, manager of a limited liability company, or a registered agent. Most owners list themselves in at least one of those capacities when they file annual reports with the Division of Corporations. Once a creditor searches the Division’s website and discovers a debtor is involved in the management of a business in some capacity, the creditor will proceed to focus on the debtor’s ownership interests. Ownership is usually revealed through the debtor’s tax returns or through the use of other discovery tools.
Technology and Social Media
Technology advances and social media have made it easier than ever for your adversaries to discover the nature and location of your assets. There are numerous computer services that a creditor attorney can employ to search public records or banking data to locate assets in the debtor’s name. A court can order a debtor to disclose usernames and passwords on social media accounts. People often refer to assets and income in social media discussions. Social media is a revealing source of information a debtors’ finances and things debtors may have done to evade judgment collection.
Asset protection does not involve hiding assets. People facing the collection of a judgment against them or their business should resist the common urge to hide or misrepresent their assets. Most of the information a debtor is required to provide a judgment creditor is given under oath. The debtor must testify about the nature and location of all assets.
Hiding assets, misrepresenting assets, and lying about prior transfers of your assets amounts to perjury. Perjury not only is a crime, but once discovered it severely diminishes your credibility before the judge. Judges tend to rule against any party who previously has lied to the court or the adverse party. A judgment debtor should assume that the judgment creditor will find out all information about assets currently owned and owned in the recent past.
Under Florida judgment collection laws, if a creditor cannot satisfy his judgment through garnishment, attachments, and some other legal tools pursuant to a writ of execution, the creditor may initiate proceedings supplementary to execution pursuant to Florida Statute 56.29. Proceeding supplementary is the widest ranging and most comprehensive creditor remedy. Proceedings supplementary assists judgment creditors’ satisfaction of their judgments by using equitable remedies against a variety of types of debtor rights and property which are not subject to garnishment, levy, or attachment tools.
For example, proceeding supplementary can allow a creditor to seize a judgment debtor’s stock in a corporation, the debtor’s accounts receivables, or his causes of action against a third party. These proceedings may also reach a debtor’s intangible assets such as trademarks or logos.
A creditor initiates proceeding supplementary for execution by filing a motion with the court that issued the final judgment. The statute requires the creditor to include certain allegations in the motion. Proceedings may be commenced at any time during the 20-year life of a final judgment.
Statutory Florida Debt Collection Tools
Florida debt collection laws are based on Florida Statute 56.29. The statute includes a list of collection tools for proceedings supplementary. A sample of creditor equitable remedies that Florida Statutes allow in proceedings supplementary includes:
- Avoiding fraudulent transfers: Creditors may sue third party recipients of alleged fraudulent transfers in order to reverse the transfer or obtain a judgment against the recipient for the value of property transferred. The Court may enter an order to apply transferred real property to satisfy a judgment or have the sheriff seize fraudulently transferred personal property.
- Reversing fraudulent conversion: Creditors may obtain a court order reversing the debtor’s use of non-exempt assets to purchase or obtain an exempt asset if the purchase was intended to protect the non-exempt assets from creditors. An example of a fraudulent conversion is using non-exempt cash to buy an exempt annuity contract.
- Piercing corporate veil: Creditor may sue individuals to enforce judgment against a corporation where the corporation has been established to defraud creditors or is merely the debtor’s alter-ego.
- Reverse piercing: Creditor sues a corporation to satisfy judgment against an individual who conveyed personal assets to an alter-ego corporation to avoid collection.
- Charging Liens: A judgment creditor can apply for a charging lien against the debtor’s ownership of limited partnerships and limited liability companies;
- Injunctive Relief: Creditors may seek injunctions against the debtor preventing subsequent transfer of the debtor’s property. The creditor must demonstrate that fraudulent transfers are immanent.
- Receivership: In extraordinary circumstances, a creditor may convince a court to appoint a receiver to take possession of the debtor’s property. The receiver manages the debtor’s property and preserves its value during collection procedures.
- Equitable liens. A creditor may have a court declare an equitable lien against the debtor’s real property including, when applicable, the debtor’s homestead.
The proceedings supplementary statute gives the creditor the right to compel the debtor to appear in court and testify before a judge or magistrate about the debtor’s assets. The creditor may require the debtor to bring to the court hearing specific documents or property. The examination of the debtor must be set in the county in which the debtor currently resides.
The creditor has broad authority to examine the debtor on all matters and things pertaining to the debtor’s personal or business interest, and the creditor may ask any question that, directly or indirectly, may aid in satisfying the judgment. The creditor may also examine third parties who may be the debtor’s “alter-ego” or who may be transferees of the debtor’s property. A creditor may compel a third party to explain property the third party has received from the judgment debtor.
Federal Agency Collection
United States federal agencies, such as the Federal Trade Commission (FTC), will sue individuals for violation of federal rules and regulations and then seek to collect on resulting monetary judgments. 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. Frequent example are Federal Trade Commission suits against telemarketer firms or violators of anti-trust laws. Fortunately, Florida law can protect individuals against federal collection and FTC collections.
The Federal Debt Collection Procedures Act (Chapter 176 of Title 28 of the United States Code) (FDCPA) provides tools for government agencies 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 entireties 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 bond is significant. The costs plus risks deter most creditors from seeking immediate attachment or receivership against civil litigation defendants.
The United States and its agencies are exempt from a bond requirement associated with pre-judgment federal collection, such as FTC collections. 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.
Turnover of Property
The court may use proceedings supplementary to reach property either by ordering a sheriff to seize property or by ordering the Florida debtor or third parties to turn over assets located in Florida. The court is authorized to hold the debtor, or others in possession of the debtor’s property, in contempt for failing to obey any order issued in the proceedings.
However, a court usually may not require a debtor to turn over assets located in jurisdictions outside the state. The creditor must domesticate the judgment in the foreign jurisdiction and reach such assets through the court proceedings in the foreign jurisdiction.
Voiding Fraudulent Transfers
Proceedings supplementary also provides an independent avenue to reverse a debtor’s fraudulent transfer of personal property. The statute allows a court to order a transferee of personal property to turn over to the creditor any personal property that a debtor conveyed to a spouse, relative, or other insider within one year prior to the initiation of the underlying lawsuit.
At least one court has held that the four year statute of limitations applicable to fraudulent transfers does not apply to actions directed against transfers of personal property in the context of a proceedings supplementary. A creditor may initiate fraudulent transfer actions against personal property transfers at any time during the 20 year life of a Florida judgment.
Florida Statute of Limitations for Debt
The statute of limitations on most debt in Florida is five years. In the context of debt collection, the term statute of limitations means the amount of time a creditor has to initiate a lawsuit against you to recover the unpaid debt.
The creditor does not need to take the case to judgment or even serve you within the time period—it must only file the case.
Certain kinds of debt in Florida have special statute of limitations rules. For credit cards, the statute of limiations is five years, but the clock starts on the day of the most recent payment made by you. If you have credit card debt and then make a partial payment towards that debt, the clock restarts.
On the other hand, the statute of limitations for medical debt in Florida is five years—same as regular debt. No special rules.
What to Do Next
Our clients often want to know what they can do to become as judgment proof in Florida as possible, or how to protect their assets in general. Our clients generally are facing litigation or already have a judgment against them. For advice about what to do about your current legal situation, call to schedule a consultation or schedule an appointment online.