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Creditors' Rights and Remedies

Author johnbsims3
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#1 - Posted: 19 Oct 2006 19:46 
Creditors' Rights and Remedies


Effect of fraudulent transfers; fraudulent asset conversions

An exemption from attachment, garnishment, or legal process provided by the statute[FN1] is not effective if it results from a fraudulent transfer or conveyance as provided in the statute[FN2] on fraudulent transfers.[FN3]

Any conversion by a debtor of an asset that results in the proceeds of the asset becoming exempt by law from the claims of a creditor of the debtor is a fraudulent asset conversion as to the creditor, whether the creditor's claim to the asset arose before or after the conversion of the asset, if the debtor made the conversion with the intent to hinder, delay, or defraud the creditor.[FN4]

Definition:

As used in the statute governing fraudulent asset conversions, "conversion" means every mode, direct or indirect, absolute or conditional, of changing or disposing of an asset, such that the product or proceeds of the asset become immune or exempt by law from claims of creditors of the debtor and the products or proceeds of the asset remain property of the debtor.[FN5] The definitions in the statute covering fraudulent conveyances[FN6] also apply unless the application of a definition would be unreasonable.[FN7]

In an action for relief from a fraudulent asset conversion, a creditor may obtain:

(1) avoidance of the fraudulent asset conversion to the extent necessary to satisfy the creditor's claim;[FN8]

(2) an attachment or other provisional remedy against the asset converted in accordance with applicable law;[FN9] and

(3) subject to applicable principles of equity and in accordance with applicable rules of civil procedure: (a) an injunction against further conversion by the debtor of the asset or of other property; and (b) any other relief the circumstances may require.[FN10]
If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset converted or its proceeds.[FN11]

If an asset is converted and the converted asset is subsequently transferred to a third party, the statutes governing fraudulent transfers apply to the transfer to the third party.[FN12]

Caution:

A cause of action with respect to a fraudulent asset conversion is extinguished unless an action is brought within four years after the fraudulent asset conversion was made.[FN13]

[FN1] §§ 222.01 et seq., Fla. Stat.
[FN2] §§ 726.101 et seq., Fla. Stat.
[FN3] § 222.29, Fla. Stat.
[FN4] § 222.30(2), Fla. Stat.
[FN5] § 222.30(1), Fla. Stat.
[FN6] §§ 726.101 et seq., Fla. Stat.
[FN7] § 222.30(1), Fla. Stat.
[FN8] § 222.30(3)(a), Fla. Stat.
[FN9] § 222.30(3)(b), Fla. Stat.
[FN10] § 222.30(3)(c), Fla. Stat.
[FN11] § 222.30(4), Fla. Stat.
[FN12] § 222.30(6), Fla. Stat.
[FN13] § 222.30(5), Fla. Stat.


Generally

The Florida Constitution creates a homestead exemption[FN1] and an exemption for personal property up to a specified value owned by a natural person.[FN2] An heir is entitled to the same right of exemption of property from forced sale that the ancestor had before death.[FN3]

Under the constitution, such property is exempt from forced sale under process of any court, and no judgment, decree, or execution may be a lien thereon, except for the payment of taxes and assessments thereon; obligations contracted for the purchase, improvement, or repair thereof; or obligations contracted for house, field, or other labor performed on the realty.[FN4]

The term "forced sale" applies not only to formal and technical process, but also to any judicial proceedings, in law or in equity, that seek the appropriation of the property to the payment of debts.[FN5]

The exemption rights granted to Florida citizens by the state constitution are designed to protect individuals from utter destitution, thereby relieving the state of the burden of supporting destitute families.[FN6]

The homestead exemption may not be used to shield property from:[FN7]


(1) the payment of taxes and assessments thereon;

(2) obligations contracted for the purchase, improvement, or repair thereof; or

(3) obligations contracted for house, field, or other labor performed on realty.
The claimed exemption carries some presumptive validity, and the burden is on the objecting party to establish by the preponderance of the evidence that a claimant is not entitled to the exemption claimed.[FN8]

Observation:

The constitutional exemption is not exclusive and is not a limitation on any and all statutory exemptions in property of any kind.[FN9]

Where the total assets of a decedent are personal property in an amount slightly over the amount specified by the constitution but less than the specified amount if the funeral expenses are subtracted from the total, a court is constitutionally prohibited from ordering payment of funeral expenses from the assets of a decedent's estate due to the personal property exemption.[FN10] However, where a will directs that funeral expenses be paid from the estate, even though the estate totals only slightly over the constitutionally specified amount in personalty, courts will follow the intention of the decedent as indicated in the will and allow payment of funeral expenses.[FN11]

Caution:

The Florida homestead and personal property exemption[FN12] has been preempted by a federal court because it stood as obstacle to accomplishment of Congressional purposes behind the bankruptcy statute providing for award of compensatory and/or punitive damages against one who files an involuntary bankruptcy petition in bad faith.[FN13]

[FN1] Art. X, § 4(a)(1), Fla. Const., discussed in Fla. Jur. 2d, Homesteads §§ 1 et seq.
[FN2] Art. X, § 4(a)(2), Fla. Const.
[FN3] Thomas v. Craft, 55 Fla. 842, 46 So. 594 (1908).
[FN4] Art. X, § 4(a), Fla. Const.
[FN5] West Florida Grocery Co. v. Teutonia Fire Ins. Co., 74 Fla. 220, 77 So. 209 (1917).
[FN6] In re Dwyer, 305 B.R. 582 (Bankr. M.D. Fla. 2004).
[FN7] Colwell v. Royal Intern. Trading Corp., 226 B.R. 714 (S.D. Fla. 1998).
[FN8] In re Dwyer, 305 B.R. 582 (Bankr. M.D. Fla. 2004).
[FN9] Milam v. Davis, 97 Fla. 916, 123 So. 668 (1929).
[FN10] In re Livingston's Estate, 161 So. 2d 723 (Fla. Dist. Ct. App. 2d Dist. 1964).
[FN11] In re Hawkins' Estate, 63 So. 2d 313 (Fla. 1953).
[FN12] Art. X, § 4(a), Fla. Const.
[FN13] In re John Richards Homes Bldg. Co., L.L.C., 298 B.R. 591 (Bankr. E.D. Mich. 2003).


What constitutes personalty

Personal property to the value of an amount specified by the constitution is exempt from forced sale under process of any court.[FN1] This general exemption provision has reference to the personal property owned by one as the ordinary and usual personal assets of the estate. It does not necessarily relate to personal property acquired for a purpose distinct in its nature and uses from the ordinary or general personal estate.[FN2]

Exempt property may be in cash, furnishings, or any other personalty owned by the head of the family.[FN3] Paintings, etchings, statuary, rugs, draperies, silverware, china, linens, and furniture have been categorized as personalty,[FN4] as have money and evidences of debt[FN5] and credit in a bank.[FN6] On the other hand, although there is authority to the contrary,[FN7] proceeds of a fire insurance policy covering property occupied and used as a homestead are clothed with the exemption of the destroyed realty.[FN8]

[FN1] Art. X, § 4(a)(2), Fla. Const., discussed in § 9.
[FN2] Milam v. Davis, 97 Fla. 916, 123 So. 668 (1929).
[FN3] Richards v. Byrnes, 153 Fla. 705, 15 So. 2d 610 (1943).
[FN4] Richards v. Byrnes, 153 Fla. 705, 15 So. 2d 610 (1943).
[FN5] Carter's Adm'rs v. Carter, 20 Fla. 558, 1884 WL 2078 (1884).
[FN6] Tracy v. Lucik, 138 Fla. 188, 189 So. 430 (1939).
[FN7] West Florida Grocery Co. v. Teutonia Fire Ins. Co., 74 Fla. 220, 77 So. 209 (1917).
[FN8] Kohn v. Coats, 103 Fla. 264, 138 So. 760 (1931).

Real property

The lands and tenements of a debtor are specifically made subject to attachment.[FN1] Real estate,[FN2] including buildings thereon,[FN3] may be attached, although homesteads are exempt from levy in a proper case.[FN4] The mere fact that the attaching creditor knows that the property has been conveyed to the debtor for the purpose of aiding the debtor in discharging debts does not affect the right of the creditor to levy a valid attachment lien.[FN5]

Because rental properties were held by a judgment debtor and his wife as tenants by the entirety, the rental income from the properties were also tenancy by the entirety property and were free from attachment by creditors of the debtor.[FN6]

[FN1] § 76.01, Fla. Stat.
[FN2] Lewis v. Stephens, 85 Fla. 437, 96 So. 396 (1923); Caldwell v. People's Bank of Sanford, 73 Fla. 1165, 75 So. 848 (1917); Florida Ins. Exchange v. Adler, 174 So. 2d 75 (Fla. Dist. Ct. App. 3d Dist. 1965).
[FN3] Rogers v. Munnerlyn, 36 Fla. 591, 18 So. 669 (1895).
[FN4] §§ 222.01 et seq., Fla. Stat., discussed, generally, in Fla. Jur. 2d, Homesteads §§ 1 et seq.
[FN5] Carr v. Thomas, 18 Fla. 736, 1882 WL 3027 (1882).
[FN6] Sunshine Resources, Inc. v. Simpson, 763 So. 2d 1078 (Fla. Dist. Ct. App. 4th Dist. 1999).

Personal property

The goods and chattels of a debtor are specifically made subject to both attachment[FN1] and garnishment.[FN2] It follows that a debtor's personal property,[FN3] including such varied objects as lumber[FN4] and automobiles,[FN5] may be reached by attachment or garnishment. The fact that the property is perishable does not mean that it cannot be attached in an appropriate proceeding.[FN6]

However, a debtor's personal financial and property records may not be subjected to a writ of attachment.[FN7] Books and records that have no inherent value and are obviously sought only for the purposes of discovery do not fall within the statutory definition of "goods and chattels, lands and tenements."[FN8]

[FN1] § 76.01, Fla. Stat.
[FN2] § 77.01, Fla. Stat.
[FN3] Valdosta Mercantile Co. v. White, 56 Fla. 704, 47 So. 961 (1908); Geiger v. Henry, 44 Fla. 208, 32 So. 874 (1902).
[FN4] Florio v. Colquitt Hardware Co., 160 Fla. 92, 33 So. 2d 722 (1948); Tilghman v. U.S. Fidelity & Guaranty Co. of Baltimore, Md., 90 Fla. 282, 105 So. 823 (1925).
[FN5] Carroll v. Oranie, 104 Fla. 225, 139 So. 593 (1932).
[FN6] Engelke & Feiner Milling Co. v. Grunthal, 46 Fla. 349, 35 So. 17 (1903).
[FN7] Cerna v. Swiss Bank Corp. (Overseas), S.A., 503 So. 2d 1297 (Fla. Dist. Ct. App. 3d Dist. 1987).
[FN8] Cerna v. Swiss Bank Corp. (Overseas), S.A., 503 So. 2d 1297 (Fla. Dist. Ct. App. 3d Dist. 1987).


Attachment and Garnishment
Property and Interests Subject to Attachment and Garnishment In General

Money and bank deposits

Money or likewise, funds in the bank, may be garnished. The fact that such funds are not deposited in the defendant's name and are deposited in the account of the defendant's wife does not mean they cannot be reached by garnishment,[FN1] assuming that the wife has no interest in the funds in her own right.[FN2]

However, a bank account construed as an estate by the entireties is not subject to garnishment for the debt of the husband alone.[FN3]

Attachment is available only against the goods, chattels, lands, and tenements of the debtor.[FN4] Thus, Florida law does not authorize the attachment of an escrow fund that had been established to insure satisfaction of a judgment lien against real property that was in the process of being sold, but the creditor would be permitted to enforce a judgment against the fund by obtaining a writ of garnishment.[FN5]


[FN1] Mizner Land Corp. v. Abbott, 128 Fla. 489, 175 So. 507 (1937).
[FN2] Bank of Greenwood v. Rawls, 117 Fla. 381, 158 So. 173 (1934).
[FN3] Winters v. Parks, 91 So. 2d 649 (Fla. 1956).
[FN4] § 76.01, Fla. Stat., discussed in § 87.
[FN5] Fine v. Fine, 400 So. 2d 1254 (Fla. Dist. Ct. App. 5th Dist. 1981).


Attachment and Garnishment-Property and Interests Subject to Attachment and Garnishment

Property held in trust

The equitable interest of a defendant as beneficiary of a trust is not subject to garnishment, at least in the absence of express statutory authorization.[FN1] The creditors of the trustee are not entitled to an attachment to subject trust property held by the trustee to the payment of the trustee's debts.[FN2] In fact, the remedy is not available even if the debt is chargeable to the trust itself.[FN3] Likewise, social security and withholding taxes held in a trust fund for the United States established and managed by a debtor are not garnishable.[FN4] Under a contract providing a brokerage fee of 5% of all principal paid to the seller, the seller became a trustee for the broker of 5% of all payments received, and the broker was not a general creditor of the seller so that the trust funds could not be reached by general creditors of the seller, and the estate of the seller became a successor–constructive trustee as to payments received by it.[FN5]

However, funds placed by a husband in trust with his attorney for the purpose of having them paid to the wife and wife's attorney, if and when a final decree of divorce was entered, were subject to garnishment where the husband would have been entitled to the funds upon demand made on the attorney as against a contention that the attorney had a retaining lien against the funds for his fees that would preclude garnishment.[FN6]

Observation:

Where evidence fails to show that an account is a true trust account, the account is subject to garnishment.[FN7]

[FN1] McLeod v. Cooper, 88 F.2d 194 (C.C.A. 5th Cir. 1937).
[FN2] Tillman v. Taylor, 99 Fla. 1326, 128 So. 846 (1930).
[FN3] Johnston v. Smith, 76 Fla. 474, 80 So. 184 (1918).
[FN4] Fort Walton Roofing and Maintenance Co., Inc. v. Shelby Mut. Ins. Co., 372 So. 2d 971 (Fla. Dist. Ct. App. 1st Dist. 1979).
[FN5] Campbell v. Pace, 369 So. 2d 413 (Fla. Dist. Ct. App. 3d Dist. 1979).
[FN6] Wilkerson v. Olcott, 212 So. 2d 119 (Fla. Dist. Ct. App. 4th Dist. 1968).
[FN7] Sun Bank/North Florida Nat. **** v. Bisbee to Baldwin Ins. Co., 559 So. 2d 351 (Fla. Dist. Ct. App. 1st Dist. 1990).

Creditors, Banks, Bill Collectors and Debtors Florida Homestead Services -- Florida Homestead Exemption Act MiniBB / Creditors, Banks, Bill Collectors and Debtors /
Creditors' Rights and Remedies
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