by Mark S. Mitchell
Since the financial crisis of 2008, the economy has been improving, albeit at a slower pace than many would like, and the stock market has seen meaningful gains. However, unemployment is still relatively high and the residential and commercial real estate markets have not yet rebounded as many had hoped. Many individuals continue to face financial hardship, job loss, foreclosure, and bankruptcy. And while individuals face challenges paying their creditors, banks and other lenders — although often viewed with less sympathy in the current economic climate — face challenges collecting payments from borrowers.
Recently the Florida Legislature amended F.S. §222.11, the statutory exemption of an individual’s earnings from wage garnishment. The amendment of §222.11 modified Florida’s wage garnishment exemption and afforded greater protection to debtors. Specifically, the amendment increased the amount of a debtor’s exempt disposable earnings and also added certain requirements to the wage garnishment exemption waiver. Awareness of these changes is of equal importance to both borrowers and lenders.
The Fundamentals of Garnishment
Garnishment is a statutory remedy governed by F.S. Ch. 77, and is used by creditors to collect debts owed by debtors. Garnishment is most often used as a post-judgment remedy to collect a debt owed by the “judgment debtor,” which is the party against whom the judgment is entered.1 A writ of garnishment is an order issued by the court, whereby the “garnishor” — the creditor who brings the garnishment action — procures a lien on personal property of a judgment debtor in the possession of a third party, referred to as the “garnishee.”2 After a writ of garnishment is issued, the garnishor, garnishee, and judgment debtor are afforded opportunities to respond, assert defenses, and claim and dispute exemptions.3
Garnishment may be used in a variety of circumstances. For example, a writ of garnishment may be used to recover money held in a judgment debtor’s bank account.4 When such a writ is issued, the bank/garnishee will often freeze the account and apply the funds, subject to any exemptions, to satisfy the judgment of the garnishor. A writ of garnishment also may be used to recover tangible or intangible personal property of the judgment debtor in the possession of another.5 When a court issues the writ, the garnishee will have to surrender the property to the sheriff, who will sell the property in a public auction in order to satisfy the garnishor’s judgment.6 Additionally, a writ of garnishment may be used to collect portions of a judgment debtor’s wages through issuance of a continuing writ of garnishment to the judgment debtor’s employer.7 A continuing writ of garnishment provides notice to the employer/garnishee to withhold periodically a portion of the judgment debtor’s earnings, which will then be paid to the garnishor until the judgment is satisfied or otherwise directed by the court.8
Wages Exempt from Garnishment under F.S. §222.11
• Requirements of the “Head of Family Exemption” — A creditor has a right to garnish a judgment debtor’s wages, subject to the exemptions set forth in §222.11. If a judgment debtor is considered a “head of family,” §222.11 exempts a judgment debtor’s “disposable earnings.”
Whether a judgment debtor is a “head of family” is determined by the statutory definition in §222.11(1)(c). A “head of family” is defined as a person who provides more than one-half of the support of a child or other dependant.9 If a judgment debtor does not qualify as a head of family, then his or her disposable earnings will not be protected under the “head of family exemption.” In addition to the head of family requirement, the exemption under §222.11 is limited to the “disposable earnings” of a judgment debtor. “Earnings” is broadly defined as monetary compensation for labor and personal services.10 However, earnings are not exempt under §222.11 if they are not received as regular or fixed compensation dictated by the terms of an arm’s length employment agreement.11 Further, only “disposable earnings” are exempt from garnishment, which are the judgment debtor’s earnings after withholdings required by law.12
• Claiming and Disputing the “Head of Family Exemption” — There are two ways to properly claim the “head of family exemption.” First, the judgment debtor can file an exemption form within 20 days of receipt of the notice of garnishment provided by the garnishor.13 The garnishor then has a short period of time to object to the claimed exemption by filing a sworn statement contesting the exemption (i.e., three business days if the notice is served by hand delivery, and eight business days if it is served by mail).14 Alternatively, the judgment debtor may claim the exemption by filing a “head of family” affidavit, asserting that the money attached is from labor or personal services and that he or she is the head of family.15 A garnishor is given an opportunity to dispute the claimed exemption by filing a sworn statement disputing the exemption within two business days of receipt of the judgment debtor’s head of family affidavit.16
If the judgment debtor qualifies for and properly claims the “head of family exemption,” then the judgment debtor is afforded two levels of protection from wage garnishment. First, the disposable earnings of the judgment debtor up to $750 per week are automatically exempt from garnishment. No exceptions. Second, all disposable earnings greater than $750 per week are exempt, unless the exemption is affirmatively waived by the judgment debtor in accordance with §222.11.
• Further Protections Afforded by the CCPA and §222.11 — Separate and apart from §222.11, the Consumer Credit Protection Act (CCPA), 15 U.S.C. §1673, limits the amount a creditor may garnish. The CCPA, subject to certain exceptions, restricts garnishment of a judgment debtor’s disposable earnings to the lesser of 1) 25 percent due each pay period, or 2) the amount by which the disposable earnings for the pay period exceed 30 times the federal minimum hourly wage.17
The CCPA is incorporated into F.S. §222.11, providing further protection from garnishment. This protection is afforded irrespective of a debtor’s ability to satisfy the “head of family exemption” under §222.11. For example, if a judgment debtor does not qualify for the “head of family exemption,” then his or her disposable earnings may be garnished, subject to the restrictions under the CCPA. The CCPA also applies when a judgment debtor qualifies for the “head of family exemption” but has waived his or her right to the exemption of disposable earnings greater than $750 per week. In this context, the CCPA limits the amount of disposable earnings that may be garnished, earnings which would otherwise be subject to garnishment.
Additionally, disposable earnings of a judgment debtor that are 1) exempt under either the “head of family exemption” or the CCPA, and 2) deposited in a financial institution, are exempt from garnishment for six months after the earnings are received by the financial institution.18 However, if such disposable earnings cannot be traced and properly identified as earnings, then the disposable earnings are not afforded the six-month exempt status and will be subject to garnishment.
2010 Changes to F.S. §222.11
In October 2010, the Florida Legislature amended the “head of family exemption” under F.S. §222.11 in two material ways. First, the amendment changed the amount of disposable earnings that are automatically exempt from $500 to $750 per week.19 Second, and more importantly, the amendment created additional requirements for a creditor to obtain a valid and enforceable waiver of the garnishment exemption (referring to the exemption of disposable earnings in excess of $750 per week).20
The statute now requires the waiver of the judgment debtor to be stated on a separate document, and, therefore, cannot be inconspicuously located in an agreement or contract.21 Also, the waiver must be written in the same language as the contract or agreement to which the waiver relates.22 Finally, the waiver must be in at least 14-point font and “substantially” in the following form:
If you provide more than one-half of the support for a child or other dependent, all or part of your income is exempt from garnishment under Florida law. You can waive this protection only by signing this document. By signing below, you agree to waive the protection from garnishment.
It is evident that the amendment of §222.11 reflects an intent of policymakers to provide greater wage protection to judgment debtors and also increase awareness of the right to claim (or not waive) the exemption. Given the amendment’s material change to the exemption waiver, lenders, particularly banks, need to be aware of the change and incorporate the new waiver requirements into their loan documents. It is also worth noting that the amendment of §222.11 is not given retroactive application and, therefore, the new waiver requirements apply to contractual agreements executed after October 1, 2010.
The garnishment wage exemption under §222.11 continues to provide judgment debtors considerable protection, enabling a debtor to exempt significant amounts of disposable earnings for up to six months. While garnishment can be an effective tool for collecting judgments, the garnishment wage exemption can serve as an impediment to collection from an otherwise financially solvent judgment debtor. If lenders fail to understand and account for the recent changes under §222.11 with respect to the garnishment exemption waiver, or alternatively, if debtors are aware of the exemption and choose not to waive it, then the effectiveness of wage garnishment may be substantially limited.
1 Fla. Stat. §§77.03, 77.031.
2 Fla. Stat. §77.06(1).
3 Fla. Stat. §§77.04, 77.061, and 77.07.
4 Fla. Stat. §77.01.
6 Fla. Stat. §77.14.
7 Fla. Stat. §77.0305.
9 Fla. Stat. §222.11(1)(c).
10 Fla. Stat. §222.11(1)(a).
11 See In re Branscum, 229 B.R. 32, 34 (M.D. Fla. 1999) (holding that monies earned by an independent contractor are not protected by §222.11).
12 Fla. Stat. §222.11(1)(b).
13 Fla. Stat. §77.041(2).
14 Fla. Stat. §77.041(3).
15 Fla. Stat. §222.12.
17 15 U.S.C. §§1672(b) & 1673(a).
18 Fla. Stat. §222.11(3).
19 Fla. Stat. §222.11(2)(a).
20 Fla. Stat. §222.11(2)(b).
Mark S. Mitchell is a partner with Rogers Towers, P.A., in Jacksonville, and focuses his practice on bankruptcy, creditors’ rights, and commercial litigation.
This column is submitted on behalf of the Business Law Section, Brian Keith Gart, chair, and Lynn Sherman, editor.