DeSantis Veto of Modest Bankruptcy Relief Will Hurt Stressed Floridian Families That Need It Most

The bill would have afforded a measure of relief for Floridians already beset by bankruptcy, by giving them a little credit for equity in their primary vehicle.  Instead, the Governor voted “no.” In a statement accompanying the veto, DeSantis proclaimed that the measure, if enacted into law, would have “incentivized” Floridians to file bankruptcy. 

I believe the governor’s stated justification is ridiculous. My opinion is not grounded in politics. I am a lifelong Republican and I voted for Ron DeSantis in the last election. He just got this one horribly wrong. 

First of all, let’s be clear: No one wants to file personal bankruptcy. No one. In fact, personal bankruptcy is, for most, a last resort. It is a necessity, brought about by unforeseen medical bills, by reduction of or elimination of income, or loss of a small business, or is a financial by-product of divorce.  Individuals file personal bankruptcy to stop wage garnishment, or to save their house. 

On a daily basis, my staff and I meet with those who are lost and uncomfortable, due to embarrassment but usually due to hopelessness about their financial affairs. Our goal during this initial meeting is to help lift the client’s spirits, to explain options, and to have them leave my office in a better state of mind than when they arrived. This is the hard truth about bankruptcy. Individuals most certainly do not jump into personal bankruptcy due to imagined “financial incentives,” which is what the governor inferred.  That is nonsense. Personal bankruptcy is a means to get out of financial quick sand. It is not a luxury or an investment strategy. 

Some background is in order: Chapter 7 Bankruptcy was implemented by Congress in the early 1970s in order to provide “honest but unfortunate debtors, a fresh financial start.”  The Chapter 7 process takes about 90 days, and when successful, results in a discharge of debt, which means the debt is extinguished.  The type of debt typically discharged includes credit card bills, medical bills, and mortgage deficiency bills. 

The type of debt that survives Chapter 7 bankruptcy includes mortgage debt on houses being retained, car loans on cars being kept, student loan debt, certain tax debt, and debt resulting from divorce, such as child support and alimony.  Far and away, the largest benefit for most clients I represent in Chapter 7 cases is the elimination of credit card debt, usually incurred to make ends meet when wages were lost due to medical situations, or loss of job or some other financial calamity.

But there is a tradeoff: If you file for Chapter 7 relief, the government imposes certain limits on how much personal property you can own and retain, without paying, essentially, a bankruptcy tax. 

For example, if you seek to discharge $40,000 in credit card debt that was incurred while you were in the hospital and unable to work, the government allows you to retain a couple of thousand dollars’ worth of personal property, including such items as clothing, furnishings and money in the bank, free of charge. That’s not much.  If you are over the government’s limits, you may have to pay an equivalent amount of money to a Bankruptcy Trustee, who takes a fee and distributes the remainder (if any) to your creditors.  So there is the tradeoff: you get a discharge of debt, but you pay a bankruptcy tax to retain property not covered in the government’s exemptions.

Getting to the point here, the government currently allows you to keep $1,000 in equity in your vehicle, assuming you are one of the lucky ones who actually has equity in your vehicle.  That amount obviously doesn’t go very far, especially if you own your car outright.  For example, if you own your 2012 Ford Explorer, with a current fair market value of $6,000, you are over the $1,000 exemption by $5,000. Consequently, your bankruptcy trustee could demand that you pay the sum of $5,000 to the government in order to keep your vehicle, and thereby pay for it twice. That’s quite a hardship for a family already in bankruptcy.

The situation is made worse by recent events sparked by the pandemic, which has seen car values skyrocket and thus increase the amount of money a family would be required to pay the government, in order to retain their vehicle after bankruptcy.  So to the rescue came Chad Van Horn, a South Florida Bankruptcy attorney, who was able to successfully lobby Rep. Mike Gottlieb, the Sunrise Democrat, to sponsor a bill increasing the vehicle equity protection from $1,000 to $5,000.  Noteworthy is that the Florida vehicle equity protection amount has been stalled at $1,000 since 1993, despite nearly thirty years of increased vehicle prices.

Not surprisingly, Gottlieb’s bill sailed through the Florida legislature, with a 117-0 favorable vote in the Florida House followed by a 37-0 vote in the Florida Senate. This makes sense, because after all, this modest proposal would go a long way in allowing financially distressed Florida families with a small amount of equity in their vehicle to perhaps retain their car after a bankruptcy. And for those with more than $5,000 equity in their vehicle, they would still have to pay that value to the government. Who could possibly object?

Well, the answer is: Gov. Ron DeSantis.

By vetoing CS/HB 265, Governor DeSantis ensured that the Florida vehicle exemption in bankruptcy remains at its 1993 rate of $1,000. For Florida families that own even a clunker with a $3,000 value, they will have to pony up the non-exempt amount of $2,000 to the government to keep the car. 

Had DeSantis signed the bill into law—as the Florida Legislature would have had him do—that same family could keep their car and could focus on their fresh financial start, rather than worry about whether and how they could pay the government an extra $2,000 to keep it.  Moreover, since the money that a family would pay the government would for the most part be allocated to the government’s fees, with any remaining funds paid to unsecured creditors, primarily credit card issuers, the bill would overwhelmingly benefit Floridians at no real cost to anyone.

By claiming that Floridians would be “incentivized to file for bankruptcy” if the new law was enacted I believe DeSantis is in the best case either uninformed or is completely disconnected from Floridians in financial straits. Or in the worst case, he is intentionally placing the interests of large financial institutions that issue credit cards ahead of the interests of Florida families in significant financial difficulties.

The fact is that with 34 years of experience as a bankruptcy attorney, I will say that I don’t believe for a minute that passage of this bill would increase the number of bankruptcies filed in Florida. If a Florida family needs to file bankruptcy due to significant financial difficulties, then they will file bankruptcy, regardless of whether there is an extra benefit of a modest increase in vehicle equity protection. If that same family decides that the financial situation, while difficult, can be managed outside of bankruptcy, the family will not say: “You know Diane, with the $4,000 increase in vehicle equity protection in place, let’s go ahead and pay attorneys’ fees to file a bankruptcy case and go through that process….”  It’s not happening.

Instead, by vetoing this bill, I submit that Governor Ron DeSantis has not prevented an increase in bankruptcy filings, but he has instead needlessly made it more difficult for Floridians in bankruptcy to emerge and fully obtain their fresh financial start. And by doing so, he has betrayed the very Floridians who need his support most.

Scott W. Spradley is a Flagler Beach resident and a member of the Florida Bar since 1988.. His Flagler Beach law firm focuses on representing individuals and small businesses in bankruptcy proceedings.