When it comes to bankruptcy, Republican state Sen. Robert Johnsonunderstands how creditors feel. Johnson's Sarasota law firm is owed thousands of dollars by people who have declared bankruptcy - including one woman who lives in an antiques-filled home and "walks the streets today as a queen."
Now Johnson and other Suncoast lawmakers say it may be time for the Legislature to change the liberal state laws that have made Florida a virtual debtor's paradise. They were reacting to a recent St. Petersburg Times series that showed how some people who file bankruptcy are able to keep lavish homes and other assets while those to whom they owe money can only hope to be repaid.
"It appears that we may have leaned too far in the protection of the debtor to the detriment of the creditor," said Rep. Peter Rudy Wallace, a St. Petersburg Democrat who serves on the House judiciary committee.
"The questions it raises for me is to what extent abuse is occur ring and what impact it is having on those who have to pay the cost of credit," added Rep. Jim Davis, D-Tampa, another committee member. The Times series noted that VISA finance charges could be cut in half - savings consumers millions of dollars annually - if so many card holders didn't escape their debts by declaring bankruptcy.
Although the U.S. Constitution empowers Congress to establish "uniform laws" on bankruptcy, Florida and most other states use their own laws in determining what assets a debtor can keep. Under Florida property laws - perhaps the most liberal in the nation - debtors can retain an unlimited amount of equity in their homes, the cash surrender value of life insurance policies and any money in annuities and Individual Retirement Accounts.
In addition, a debtor who is the head of a household can keep an unlimited amount of wages and any money in savings accounts that are directly traceable to wages. Among the cases reported by the Times was that of a professional football player who escaped more than $30,000 in debts by declaring bankruptcy although he still owns a $235,000 house in Clearwater and makes $275,000 a year as a San Diego Charger.
"It was just such an eye-opener," said Sen. Helen Gordon Davis, a Tampa Democrat. "We thought our state was similar to others, but so few states have the kind of liberal laws we have." Davis said she has asked the staff of the Senate Judiciary-Civil Committee, of which she is a member, to look into ways the Legislature could tighten property exemptions.
Florida's homestead exemption was created by Article 7 of the state Constitution, so any attempt to limit the amount of equity a debtor can keep in his house would have to be approved by voters.
However, the Legislature could make other changes on its own.
Davis said she is particularly concerned that debtors in Florida can shelter many of their assets in annuities. Because it is not defined under state law, an annuity can include almost anything.
"The trouble is most millionaires don't have a salary per se - it's the income they get from investments," Davis said. "We're certainly going to see what we can do about that."
Johnson, the senator from Sarasota, thinks the Legislature also should crack down on the amount of wages bankrupt debtors can keep in savings accounts. "If they can save it, they can pay their bills," he said.
In Congress, Sen. Bob Dole, R-Kan., has introduced legislation that would close loopholes in the federal bankruptcy code that benefit people who cheat banks, savings associations and credit unions. The so-called Taxpayer Recovery Act is a direct outgrowth of the savings and loan scandal, which is estimated to cost U.S. taxpayers at least $285-billion.
The bill would require "S&L crooks," as Dole calls them, to pay any court-ordered restitution to banks, S&Ls and credit unions even if the debtor declares bankruptcy. It also would limit the amount of equity a debtor could claim in his homestead to just $7,500, compared to the unlimited equity now allowed in Florida, Texas and some other states.
Among the examples Dole cited is that of Larry Vinyard, an attorney for Key Savings Association of Denver. Vinyard, now serving a prison term for defrauding the Colorado S&L, paid $963,000 in cash for a five-bathroom mansion four days after he was convicted. The Federal Deposit Insurance Corp. is unable to seize Vinyard's home although he owes the federal government millions of dollars in criminal fines.