Avoiding Bankruptcy in Florida; Yes, You Can…But Should You?

On behalf of Bankruptcy Law Firm of Clare Casas on Tuesday, September 21, 2010.

As a Fort Lauderdale bankruptcy lawyer, many assume that I always recommend bankruptcy to prospective clients. Some of my best referrals come from people who schedule their free consultation and the facts of their case lead me to recommend other solutions.

One of the scenarios where bankruptcy might be avoided is if you have little or no assets that a creditor could take. Most people in this category are retired, have no wages that could be garnished (in Florida, a creditor can garnish your wages if they have a final judgment against you and other exemptions don’t apply), and do not own a car or have income other than social security. That segment of the population is what we call “collection proof.” They may get a judgment against them, but there is nothing a creditor could do to collect their money. I’ve had clients in this category choose bankruptcy not because they had to – but to stop the creditor harassment and gain peace of mind again.

But what if you own some assets and/or have a job? Wages are an asset that a creditor can garnish in Florida with certain restrictions. For example, if you are a head of household, they cannot garnish your wages but you will have to file a Claim of Exemption with the court when you receive your notice of garnishment. If your creditor objects to your claim of exemption, then you will have to go to a hearing to prove that you are a head of household. If you are a non-head of household, Florida Statute 222.11(2)(c) allows creditors to garnish only 25% of your wages.

One asset many people overlook and creditors love to take are cars. For some reason, people are under the impression that a creditor cannot take your only car because you need it to go to work. WRONG. Creditors don’t care if you can’t get to work. They only care about getting their money and your car (whether there is a loan against it or not) is an asset that they can sell and recover something. The good news is that if your car is picked up by a creditor, you can get it back by filing a bankruptcy right away.

If you have a lot of assets such as cars, investment property, money in bank accounts, etc – these can legally be taken and sold to pay off your debt. In cases like these, a Chapter 7 or Chapter 13 bankruptcy is sometimes your best option.

Another point that I’m going to briefly address here. Retirement money, 401Ks, and pensions are off limits to creditors. They cannot touch them. You should not touch them either to pay off unsecured debt — no matter how much creditors harass you or how attached you are to your credit score. If you have to choose between dipping into your retirement money or filing bankruptcy, the majority of the time you should file bankruptcy. Using your retirement money may buy you a few months of relief from your creditors but you’re only buying time and not solving the problem. The saddest cases for me are the ones where people have gone through their entire 401K feeding creditors and THEN come in to file bankruptcy.

I’ll repeat it again — your 401K money is protected against creditors – they can’t touch it. You shouldn’t touch it either to pay credit debt.

When it comes to bankruptcy, every case is unique. One can always find both reasons to avoid bankruptcy and reasons to file. The internet is a great source of information and it’s good to educate yourself on the laws, but the internet is like a blank piece of paper…it will hold whatever anyone puts on it – whether it’s true or not – and you have no way of knowing whether what you’re reading is correct. Your best option is to consult with a Broward County bankruptcy attorney and then make the best choice fror you.