Florida Exemptions from Creditors

Florida statutes provide that certain assets are exempt from creditors’ collection of money judgments. Florida’s statutory exemptions are available only to people who permanently reside in Florida. A creditor means anyone to whom you owe money.

The statutory basis of Florida exemption laws is Florida Statute 222, entitled “Method of Setting Apart Homestead and Exemptions.” The statute, or Chapter, has various sections, each pertaining to a different category of statutory exemptions from creditors.

Some of the most important assets that are exempt from creditors in Florida include:

• Head of household wages
• Annuities and life insurance proceeds and cash surrender value
• Homestead (up to 1/2 acre in a city and 160 acres in the county)
• Retirement accounts, including Roth IRA, IRA, 401k
• Disability income
• Prepaid college funding
• Social security
• Miscellaneous exemptions

Exemption of Wages from Garnishment

Wage garnishment can be an effective collection tool. One of the first things a creditor will do after obtaining a money judgment is serve a writ of continuing wage garnishment on the debtor’s employer. Florida permits a continuing wage garnishment which means that a single writ of wage garnishment applies to the debtor’s future wages until the judgment is paid or until employment terminates.

Florida statutes do not permit wage garnishment for certain debtors. Section 222.11 of Florida Statutes states that a creditor may not garnish earnings that include wages, salary, commissions, and bonuses payable to a debtor who is “head of household.” A “head of household” is someone who provides the primary financial support for a family dependent or someone to whom the debtor has a legal or moral obligation to support. Dependents include children or parents. The dependent may live in a separate residence and may even earn part of their own support.

A creditor may not garnish a head of household’s earnings even after they are deposited into a bank account (provided they are traceable and identifiable). Exempt earnings remain protected in a bank account for up to six months.

The definitions of dependents for purposes of the head of household wage garnishment exemption should not be confused with rules regarding income tax dependents. You may support someone for purposes of establishing head of household exemption status even if you do not claim that person as a tax dependent.

Waiver of Head of Household Exemption

A debtor can waive their wage exemption so long as the waiver is informed and done in writing. Many lenders include head of household exemption waivers inside loan documents. A debtor may be surprised when a creditor garnishes wages even though the debtor is a head of household when the debtor inadvertently signed a waiver in credit documents.

The Bankruptcy Code provides a remedy to save bankruptcy debtors who have waived head of household protection in loan documents. Section 522 (e) of the Code invalidates an otherwise effective waiver signed by the debtor in favor of an unsecured creditor. For example, money that a debtor has in financial accounts traceable to head of household wages may be exempt in bankruptcy notwithstanding the debtor’s waiver of the exemption in loan documents.

Head of Household Exemption for Self-Employed Workers

Business owners may not be able to take advantage of the head of household exemption. There are court cases stating that “salary” paid to the sole owner of an LLC or corporation is not “earnings” for purposes of the garnishment exemption. These courts characterized the business owner’s earnings as profit distributions instead of salary when the sole owner controls the amount and timing of the payments.

In some of these cases, the salary paid to the owner debtor fluctuated based on business cash flow, and there was no written arms-length employment agreement. Business owners need to carefully organize their business and compensation structure to qualify for the garnishment exemption. Preferably, someone other than the debtor has control or veto power over compensation.

Florida Statute 222.14 exempts the cash value of a debtor’s life insurance on their own life, and the statute also exempts all types of annuities and annuity proceeds. The exemption of life insurance cash value and the annuity exemption continues even after the debtor has received money from the life insurance policy or the annuity. Insurance and annuity payments remain protected after being deposited in a financial account if the funds can be accurately traced back to the exempt annuity or insurance policy. These do not have to be segregated in a separate account so long as the money in the account is traceable.

The cash value of life insurance and annuity proceeds may not be exempt if invested in another asset. Suppose, for example, that someone purchases a CD with proceeds from a cash value life insurance policy. The cash value of life insurance is exempt under Florida Statute 222.14. The issue is whether the funds remain exempt after converting the proceeds to a certificate of deposit.

Courts have liberally applied the life insurance and annuity exemption to include cash proceeds after being deposited into a bank account. One case specifically exempted a CD purchased with life insurance proceeds.

Most courts will impose reasonable limits on the extent of conversion of proceeds into another form of asset. There is a relatively small difference between life insurance cash deposited in a bank account and a CD purchased at the same bank. Suppose the same person were to use the insurance cash to invest in a rental property or buy securities at a different financial institution. In that case, a court well  might find that the conversion to a clearly distinct type of asset terminated the exempt nature of the insurance money.

Exemption of Life Insurance and Annuity Proceeds

Florida Statute 222.14 exempts the cash value of a debtor’s life insurance on their own life, and the statute also exempts all types of annuities and annuity proceeds. The exemption of life insurance cash value and the annuity exemption continues even after the debtor has received money from the life insurance policy or the annuity. Insurance and annuity payments remain protected after being deposited in a financial account if the funds can be accurately traced back to the exempt annuity or insurance policy. These do not have to be segregated in a separate account so long as the money in the account is traceable.

The cash value of life insurance and annuity proceeds may not be exempt if invested in another asset. Suppose, for example, that someone purchases a CD with proceeds from a cash value life insurance policy. The cash value of life insurance is exempt under Florida Statute 222.14. The issue is whether the funds remain exempt after converting the proceeds to a certificate of deposit.

Courts have liberally applied the life insurance and annuity exemption to include cash proceeds after being deposited into a bank account. One case specifically exempted a CD purchased with life insurance proceeds.

Most courts will impose reasonable limits on the extent of conversion of proceeds into another form of asset. There is a relatively small difference between life insurance cash deposited in a bank account and a CD purchased at the same bank. Suppose the same person were to use the insurance cash to invest in a rental property or buy securities at a different financial institution. In that case, a court might find that the conversion to a clearly distinct type of asset terminated the exempt nature of the insurance money.

Exemption of Retirement Accounts

Pensions, 401k plans, IRAs, and other tax-deferred retirement accounts are protected from creditors under Section 222.21 of Florida Statutes. All forms of tax-deferred retirement plans are protected. The statutory exemption specifically includes pension plans designated for teachers, county officers and employees, state officers and employees, police officers, and firefighters. Individuals typically hold a substantial portion of their financial wealth within IRA accounts and other tax-qualified retirement plans.

There is strong public policy in favor of protecting retirement plans from creditors. The exemption protects money the debtor needs to support themselves and their non-debtor family members during retirement. Without protected retirement funds, a debtor and their family could become dependent upon state government subsidies and care.

Defined Benefit Plans

A defined benefit plan can be protected even with a sole owner participant. The issue is that a defined benefit plan with a sole owner participant may not be ERISA compliant plan. (ERISA is short for Employee Retirement Income Security Act). Can a retirement plan can still be exempt in Florida even though it is not ERISA compliant.?

Previous versions of the relevant Florida statute disallowed such an exemption because the plan would not have been ERISA compliant.

However, the Florida legislature amended the statute to exempt retirement plans even if they are not ERISA compliant. In 2009, the U.S. Court of Appeals for the 11th Circuit confirmed that Florida’s amended exemption statute exempts these plans. The case is In re baker, 590 F.3d 1261 (11th Cir. 2009).

Inherited IRAs

Inherited IRAs are exempt from creditor collection under Florida statutes. There was a legal issue in past years as to whether Florida’s IRA exemption extended to rollover IRAs and inherited IRAs. The Florida legislature resolved the issue in 2011. A 2011 amendment to Florida Statute 222.21 expanded the definition of an exempt IRA to include both rollover and inherited IRA accounts. Florida’s statutory protection of inherited IRAs takes precedence over a U.S. Supreme Court ruling that inherited IRAs are not exempt under bankruptcy law.

Exemption of Disability Income

Disability income benefits under any disability insurance policy are exempt from collection under Section 222.18 of the Florida Statutes. The exemption includes health, life, and accident disability insurance proceeds.

Miscellaneous Statutory Exemptions

Florida statutes provide several miscellaneous creditor exemptions, such as professionally prescribed health aids, hurricane savings accounts (with restrictions), medical savings accounts, veterans’ benefits, and unemployment benefits.

Alimony Paid to Judgment Debtor

A divorced spouse may depend on court-ordered alimony for their support. A creditor with a judgment against the alimony recipient cannot garnish the alimony payments payable by the former spouse. There is no statutory exemption for alimony payments. Alimony is not considered wages that could be exempted from garnishment as payments from or to a head of household.

Nevertheless, Florida courts have denied judgment creditors the ability to garnish alimony payments payable to a debtor spouse as a matter of public policy. Courts have protected alimony from garnishment to provide financial support for the recipient spouse and their dependents.

Using Florida Exemptions in Other States

When a creditor obtains a judgment in another state against a Florida resident, the creditor may enforce the judgment collection through the foreign court that issued the judgment. Florida residents may not export their Florida exemptions to other state courts. Florida residents cannot use Florida exemptions to protect personal property located in states other than Florida.

If you work in another state, you are subject to the wage garnishment laws of the state where the work is performed. Furthermore, suppose a Florida resident owns or maintains real or personal property outside of Florida. In that case, the debtor’s protection of that property is determined by the exemption laws of the state where the property is located.

Location of Assets for Exemption Purposes

It is important to determine where certain assets are legally located to understand the exemption and collection law applicable to the asset.

The location of real property is its geographical location. Debtors can effectively relocate real estate outside Florida by owning the property in a Florida LLC. If the foreign property is deeded to the debtors’ LLC the debtors own LLC interests instead of interests in real property. The LLC interests are personal property in Florida. In this manner, the debtor owns moveable LLC interests in Florida, subject to Florida laws, rather than owning the underlying real property subject to laws of another state.

Asset location is an issue primarily when debtors plan to protect financial accounts. Most financial institutions provide that their customers’ financial accounts are situated at the branch office where the account is maintained or in the state where the customer resided when the account was opened.

For example, if a Georgia resident opened an IRA account at a Georgia branch of a national financial institution, and the debtor then moved to Florida, Florida exemption laws might not apply to the IRA account. The account may instead be anchored at the Georgia branch where it was opened. The new Florida resident is better protected if they move their existing financial accounts to a Florida branch of the same financial institution or to a new institution with Florida offices.

Wages, salary, and commissions are in the state where the employee performed the work. A judgment creditor may garnish a Florida resident’s earnings in the court of any state where the Florida resident earned the money. A judge in the foreign state would not apply Florida’s head of household earnings exemption to a writ of wage garnishment. Only earnings payable in Florida for work performed in Florida are protected from wage garnishment when the debtor is head of household.

Common Law Exemptions

Common law exemptions are exemptions based on judicial precedent. Consistent court rulings over time become well-settled law that is respected in subsequent litigation. The best-known common law exemption in Florida is the principal of tenancy by the entireties. The entireties concept dates to English common law. Married couples may own property jointly as tenants by entireties. According to common law, entireties assets are exempt from the creditors of either spouse, but they are not protected from joint creditors.

Constitutional Exemptions

Article X, Section 4 of Florida’s constitution protects Florida homestead property from creditor judgments. The homestead exemption is the most protected asset from creditors in the entire country. The homestead exemption protects a person’s primary residence from forced sale by judgment creditors. There is no dollar cap to the homestead exemption. But the exemption is limited to 1/2 acre in the city and 160 acres in the county.

Federal Exemptions

Federal law exempts some assets not included in Florida statutory or common law. The most important federal exemption is the protection of social security payments. Social security income is exempt from creditors to the extent it is reasonably necessary to support the debtor’s family. Here are some of the miscellaneous federal exemptions:

• Social security
• Civil service retirement
• Longshoremen death and disability
• Military retirement
• Indian lands
• Military deposits while on active duty
• Medal of honor pensions

Florida Bankruptcy Exemptions from Creditors

An essential concept in Chapter 7 bankruptcy is exemptions or exempt property. Bankruptcy exemptions describe the personal and real property a bankruptcy debtor may keep through the bankruptcy process and retain after the bankruptcy. As soon as a debtor files Chapter 7 bankruptcy in Florida, a Chapter 7 trustee takes control of the debtor’s “non-exempt” property for the benefit of the debtor’s unsecured creditors. The bankruptcy debtor may retain their exempt property regardless of its value and amount.

There is a federal law that provides for asset exemptions in bankruptcy. Florida has “opted out” of the federal exemption program and has chosen to apply Florida’s own exemptions in Florida bankruptcy cases. What property is exempt and what property is non-exempt depends on Florida’s exemption laws and the judicial decisions interpreting those state exemptions.

The most common Florida bankruptcy exemptions in 2022 include:

• Homestead. Homestead is the debtor’s primary residence situated on up to 1/2 acre in a city and 160 contiguous acres in an unincorporated county. Bankruptcy law imposes limits on the homestead exemption that are not applicable under state law.
• Personal property exemptions. Debtors who claim a homestead exemption are permitted to also exempt $1,000 of miscellaneous personal property, such as household furniture. Non-homestead debtors may exempt $4,000 of personal property.
• Motor vehicles. Cars are exempt up to $1,000 equity.
• Wages. The wages and earnings of a bankruptcy debtor who is head of household are exempt under Florida law.
• Retirement accounts. The bankruptcy debtor’s IRA, 401k, pension, and similar retirement accounts are exempt under section 222.21(2)(a) of Florida law.

FAQs about Exemptions

Is your home exempt from creditors in Florida?

The most important exemption from creditors in Florida is the Florida homestead exemption. The homestead exemption is in the Florida Constitution. Florida’s homestead law protects up to 1/2 acre of real property in a city and up to 160 acres in an unincorporated county from property liens and forced sale.

Other than the acreage limitation, there is no monetary cap on the homestead exemption in Florida.

Because the homestead exemption is provided for by the Florida Constitution, it is improbable that it could be undone—it would take a full constitutional amendment, which is much more difficult and unlikely than repealing a state statute.

Because the Florida Constitution takes precedence over Florida statutes, Constitutional provisions cannot be impacted by any other law passed by the state, including fraudulent conveyance statutes.

Can both spouses claim head of household exemption?

When two spouses are named as debtors in the same judgment, only one of the spouses can be head-of-household. Joint debtors cannot argue that they each support a separate child or parent.

Whenever two spouses each earn money, it is possible that neither of them can be head of household. If the spouses have children, the higher-earning spouse is probably head of household. But, if the two earning spouses do not have children, neither will qualify to claim the head of household exemption from wage garnishment. In that case, it is not enough that the debtor spouse earns more than the non-debtor spouse.

The debtor claiming the exemption must be the dependent spouse’s primary source of support when looking at the dependent’s income from all sources. Courts will also consider non-financial factors, including which spouse oversees financial decisions.

Are annuities protected from creditors in Florida?

All annuities are exempt from creditors according to Florida Statute 222.13.. Annuities are perhaps the most popular financial product for asset protection planning.

Generally, an annuity is a contract to pay money to a beneficiary over time in periodic payments. There are several types of annuity contracts. Most annuities are commercial contracts between an owner and a large insurance company. Two individuals may agree to private annuity contracts. Private annuities between family members are often utilized for estate tax planning.

Fixed annuity contracts provide for a fixed periodic payment amount over a defined period of time. A variable annuity contract invests the annuity principal and changes the payment amount from time to time depending upon the value of the annuity’s investment. Florida courts have liberally interpreted this statutory exemption to include the broadest range of annuity contracts and arrangements.

Additional protection is available by purchasing international annuities. Particularly, Switzerland and Liechtenstein have laws that guard annuities against attack by creditors from outside countries, including from the United States.

Is life insurance protected from creditors in Florida?

Death benefits paid from a life insurance policy after the insured’s death are exempt from the insured’s creditor under Florida Statute 222.13. Cash value in insurance policies is protected from the policy owner’s creditors by Florida Statute 222.14. Florida law exempts the cash value of a debtor’s policy insuring the debtor’s own life. But the law does not protect the cash value of life insurance when the insured is someone other than the debtor. For example, a husband cannot exempt the cash value of a policy he owns insuring the life of his spouse or child.

Suppose there is a joint judgment against two spouses, and one spouse owns an insurance policy for the benefit of the other spouse. In that case, the joint creditor may garnish a death benefit payable to the surviving debtor spouse after the death of the insured spouse. The money could be protected if the policy were owned by an irrevocable insurance trust.

Are 529 plans protected from creditors in Florida?

A 529 plan is a popular tax-advantaged tool that parents use to save for college. Florida prepaid college tuition plans and Florida’s 529 College Saving Plan are protected from creditors by Florida Statute 222.22.

Is social security exempt in Florida from creditors?

Federal law protects social security payments from recipient’s creditors. Social security benefits, including both social security income and disability, are exempt from garnishment under Section 207 of the Social Security Act. These benefits retain their exemption after being deposited into the debtor beneficiary’s financial accounts. It is against the law to even threaten garnishment of social security income.

There are exceptions to federal protection of social security benefits. Some court decisions deny the protection of accumulated social security proceeds when the debtor is wealthy and does not rely on social security to support their basic needs. Also, the U.S. Government may garnish up to 15% of social security checks to collect money owed to the federal government. The same percentage (15%) of monthly social security payments may be garnished to enforce a court alimony or child support award. In addition, the Internal Revenue Service may levy social security payments to collect a tax debt.

Is Florida a debtor-friendly state?

Yes, Florida is a debtor-friendly state. Florida has the strongest homestead exemption in the entire country. In addition, Florida’s tenants by entireties exemption allows a married debtor to protect joint assets from separate debt. Finally, Florida has an unlimited wage garnishment exemption for the head of a family, plus exemptions of annuities, life insurance, and retirement accounts.

Is a 401k protected from creditors in Florida?

Yes, a 401k is entirely protected from creditors in Florida, along with other common retirement accounts: 403b accounts, IRAs, inherited IRAs, Roth IRAs, Simple IRAs, among others.