The Head Of Household Exemption Has One Large Loophole
The Florida Head of Household exemption is a powerful tool that allows people to protect money they earn at work from creditors, whether in a collections lawsuit (such as a lawsuit suing on a credit card or medical debt) or whether in bankruptcy. But there’s one bit exception to this exemption that you should be aware of when filing for your bankruptcy.
What is the Head of Household Exemption?
The Florida Head of Household exemption allows consumers to protect or exempt from any creditor, including being exempt in bankruptcy, wages that the consumer earns. To get the exemption, the consumer has to show that they pay more than half of the household expenses for dependents who live with the consumer or debtor.
The exemption applies to the first $750 per week that the debtor earns, exempting about $3,000 per month. However, even debtors who make more than that still get some protection: If you do make more, the initial $750 per week is still exempt, and only the amount over the $750 can be taken by creditors (whether by wage garnishment, bankruptcy, or other means).
Money in the bank still gets the exemption, for up to six months, even if that money is intermingled or combined with income unrelated to wages earned.
That means for bankruptcy filers, even if you’ve collected a small bank account, so long as the deposited money came from your employment for the last six months, the money is safe.
But courts have not been so eager to apply the exemption to independent contractors. The concern is that independent contractors are essentially business owners, and as such, can manipulate their incomes to make it look like they make less than they do.
To avoid that kind of manipulation, courts have been hesitant to apply the exemption to independent contractors.
Are You an Independent Contractor?
Courts will generally look to see whether an independent contractor is doing things that would normally be associated with a small business owner. Courts aren’t so concerned with how your or your employer labels you (in fact, employers often mislabel employees as contractors, and vice versa, sometimes innocently and sometimes purposely).
To see if you are an employee or a contractor, courts will ask if you get a regular, periodic paycheck, or a sporadic, non-guaranteed paycheck. They will see whether you must do the work or whether you could, if you wanted to, subcontract to do the work. If you have an employment contract, courts will look to see whether that contract was entered into at arms length.
If you think you may be an independent contractor, and have income based assets to protect from creditors, collection or in bankruptcy, talk to a qualified attorney to make sure you are protected.