The Florida Senate
BILL ANALYSIS AND FISCAL IMPACT STATEMENT
(This document is based on the provisions contained in the legislation as of the latest date listed below.)
Prepared By: The Professional Staff of the Committee on Community Affairs
BILL: SB 406
INTRODUCER: Senator Berman
SUBJECT: Secured Transactions
DATE: October 26, 2021
ANALYST STAFF DIRECTOR REFERENCE ACTION
1. Hackett Ryon CA Favorable
2. FT
3. AP
I. Summary:
SB 406 provides that language referring only to the type of collateral is insufficient to waive
constitutional and statutory protections that prevent creditors from obtaining a judgment against
certain assets, allowing the individual to pledge such assets as collateral.
These changes are in response to a recent federal court case which held that mere contractual
reference to “all assets” included certain property previously understood to be excluded from
such an agreement. Assets unexpectedly put at risk include retirement accounts, pension
payments, and education savings accounts.
The bill takes effect upon becoming a law, and applies retroactively to all security interests.
II. Present Situation:
Asset Protection from Legal Process
A creditor can collect money owed by filing an action for a judgment in state court. A judgment
is an order of the court creating an obligation, typically a debt when creditors are involved. The
creditor may then use that judgment to collect assets from the debtor. Chapter 222, F.S., contains
exemptions that protect certain assets from legal process under Florida law, absent a waiver.
Florida exempts the following assets against creditor claims in most situations:
Homestead property (ss. 222.01-222.05, F.S.).
Certain items of personal property (s. 222.061, F.S.).
Certain disposable earnings of head of family (s. 222.11, F.S.).
The proceeds of a life insurance policy (s. 222.13, F.S.).
The cash surrender value of a life insurance policy and the proceeds of an annuity contract (s.
222.14, F.S.).
Disability benefits payable from any insurance (s. 222.18, F.S.).
REVISED: BILL: SB 406 Page 2
Certain pension, retirement, or profit sharing benefits (s. 222.21, F.S.).
Prepaid College Trust Fund moneys and Medical Savings Account funds (s. 222.22, F.S.).
A debtor’s interest in a motor vehicle, up to $1,000 in value (s. 222.25, F.S.).
A debtor’s interest in any professionally prescribed health aids (s. 222.25, F.S.).
Social security benefits, unemployment compensation, or public assistance benefits;
veterans’ benefits; disability, illness, or unemployment benefits; alimony, support, or
separate maintenance; and stock or pension plans under specified circumstances (s. 222.201,
F.S.).
These exemptions have historically been construed liberally in favor of the consumer against
creditors’ claims to exempt property.
1
When a consumer enters a security agreement – a contract
in which a debtor offers assets as collateral (“security”) to guarantee repayment – the contract
describes what assets are offered as security. Historically, a contract’s blanket offering of “all
assets” as security has not been interpreted to include assets subject to these exemptions.
2
An individual must take additional steps in order to offer certain exempt assets as collateral. For
example, in the case of a Floridian’s homestead exemption, which protects homestead property
from bankruptcy proceedings, a contractual waiver of those rights must be “knowing, voluntary,
and intelligent” to have any effect.
3
As another example, certain wages are exempt from legal
process.
4
The wages exemption may only be waived in writing, in a separate document attached
to the security agreement, which must contain mandatory waiver language in at least 14-point
font.
5
Sufficiency of Description for Collateral in Security Agreements
An effective description of collateral in a security agreement identifies the asset by specific
listing; category; type of collateral; quantity, computational or allocational formula; or any
method under which the identity of the collateral is objectively determinable.
6
Current law specifically provides that a description of collateral as “all the debtor’s assets” or
“all the debtor’s personal property” does not reasonably identify collateral.
7
Finally, current law provides that a description defined by “type” of collateral alone for a
commercial tort claim or, in a consumer transaction, for a security entitlement, securities
account, or commodity account, is not sufficient.
8
For example, “all existing and after-acquired
investment property” or “all existing and after-acquired security entitlements,” without more,
1
See e.g. Patten Package Co. v. Houser, 102 Fla. 603, 607, 136 So. 353, 355 (1931); Killian v. Lawson, 387 So.2d 960, 962
(Fla. 1980); Havoco of Am. Ltd. v. Hill, 790 So.2d 1018, 1021 (Fla. 2001); Connor v. Seaside National Bank, 135 So.3d 508,
509 (Fla. 5th DCA 2014).
2
Section 679.1081(3), F.S., Official Comment 2 to U.C.C. s. 9-110 (s. 679.1081(3), F.S.).
3
See e.g. Chames v. DeMayo, 972 So.2d 850, 861 (Fla. 2007) (citing State v. Upton, 658 So.2d 86, 87 (Fla.1995)).
4
Section 222.11, F.S.
5
Section 222.11(2), F.S.
6
Section 679.1081(2), F.S. Chapter 679, F.S., adopts Article 9 of the Universal Commercial Code (U.C.C.), dealing with
secured transactions. Every state in the United States has adopted the U.C.C. See https://www.uniformlaws.org/acts/ucc (last
visited Oct. 26, 2021).
7
Section 679.1081(3), F.S.
8
Section 679.1081(5), F.S. BILL: SB 406 Page 3
would be insufficient in a consumer transaction to describe a security entitlement, securities
account, or commodity account.
9
Kearney Construction Co, LLC v. Travelers Casualty & Surety Company of America
A recent federal court case held that general, broad pledges of “all assets” waives ch. 222, F.S.,
protections.
10
In Kearney Construction Company, LLC v. Travelers Casualty and Surety
Company of America
11
the debtor obtained a line of credit and pledged collateral in the contract
as follows:
Grant of Security Interest. As security for any and all Indebtedness (as
defined below), the Pledgor hereby irrevocably and unconditionally grants
a security interest in the collateral described in the following properties[:]
all assets and rights of the Pledgor, wherever located, whether now owned
or hereafter acquired or arising, and all proceeds and products thereof, all
goods (including inventory, equipment and any accessories thereto),
instruments (including promissory notes)[,] documents, accounts, chattel
paper, deposit accounts, letters of credit, rights, securities and all other
investment property, supporting obligation[s], any contract or contract
rights or rights to the payment of money, insurance claims, and proceeds,
and general intangibles (the “Collateral”).
12
The Eleventh Circuit considered whether this language included assets held in the debtor’s
Individual Retirement Account (IRA). The debtor argued that the IRA should not have been
included in all assets and was never intended to have been offered as collateral.
13
The court
found that the security agreement’s language constituted an “unambiguous pledge” of all assets,
which includes those exempt under ch. 222, F.S.
14
Kearney’s IRA was not specifically listed in
the agreement, but the court concluded that the broad language of the contract “encompassed
potential retirement accounts or funds, such as the [IRA] at issue here.”
15
The courts did not address whether ch. 222, F.S., exemptions or ch. 679, F.S., description
requirements should have any weight in interpreting the contract. The courts also did not explain
what part of the security agreement encompassed the IRA. It is unclear if it was part of a specific
collateral category such as a deposit account, investment property, general intangible, or another
category,
16
each of which could have different treatment.
17
9
Section 679.1081(5), F.S.; Official Comment 5 to U.C.C. s. 9-108 (s. 679.1081(5), F.S.).
10
These concerns were raised by the Florida Bar’s Real Property, Probate, and Trust Law Section, which formed a “Kearney
Subcommittee” within its Asset Protection Committee. See the Kearney Subcommittee’s White Paper (Oct. 14, 2021) (on file
with the Senate Committee on Community Affairs).
11
795 Fed.Appx. 671 (Fla. 11th Cir. Nov. 13, 2019).
12
Id. at 673.
13
Id.
14
Id.
15
Magistrate Judge’s Report and Recommendation, Case 8:09-cv-01850-JSM-TBM, Docket 865, at 28.
16
Id.
17
Sections 679.1021, 679.1031, 679.1041, 679.1051, 679.1061, 679.1071, 679.1081 and 679.1091, F.S. BILL: SB 406 Page 4
Federal law treats the use of any funds inside a tax-advantaged retirement account as a taxable
distribution from that account.
18
Therefore, any such funds used unexpectedly for a pledge of “all
assets” towards a debt risk losing their tax-advantaged status, subject to back taxes and penalties.
III. Effect of Proposed Changes:
Section 1 amends s. 679.1081(5), F.S., to provide that those accounts and entitlements described
in ss. 222.13-222.16, s. 222.18, and ss. 222.201-222.22, F.S., are not adequately described by
general reference to the type of collateral. In order to include such an asset in a security
agreement the asset must be described by specific reference to the individual asset as provided in
s. 679.1081, F.S.
The assets referred to in those sections include life insurance policies, cash surrender value of
life insurance policies and annuity contracts; wages or reemployment assistance or
unemployment compensation payments due deceased employees; disability income benefits;
certain payments protected by the federal Bankruptcy Reform Act of 1978; pension money and
tax exempt retirement accounts; and assets in qualified tuition programs, medical savings
accounts, Coverdell education savings accounts, and hurricane savings accounts.
Section 2 provides that the bill applies retroactively to all security interests.
Section 3 provides the bill takes effect upon becoming a law.
IV. Constitutional Issues:
A. Municipality/County Mandates Restrictions:
Not applicable. The bill does not require counties and municipalities to spend funds, limit
their ability to raise revenue, or reduce the percentage of a state tax shared with them.
Therefore, the mandates provisions of s. 18, Art. VII of the State Constitution do not
apply.
B. Public Records/Open Meetings Issues:
None.
C. Trust Funds Restrictions:
None.
D. State Tax or Fee Increases:
The bill does not create or raise state taxes or fees. Therefore, the requirements of s. 19,
Art. VII of the State Constitution do not apply.
18
I.R.C. 408(e)(4). BILL: SB 406 Page 5
E. Other Constitutional Issues:
None identified.
V. Fiscal Impact Statement:
A. Tax/Fee Issues:
The Revenue Estimating Conference has not reviewed the bill to identify a fiscal impact.
B. Private Sector Impact:
The bill protects consumers from unknowingly pledging otherwise exempt assets.
C. Government Sector Impact:
None.
VI. Technical Deficiencies:
None.
VII. Related Issues:
None.
VIII. Statutes Affected:
This bill substantially amends section 679.1081 of the Florida Statutes.
IX. Additional Information:
A. Committee Substitute – Statement of Changes:
(Summarizing differences between the Committee Substitute and the prior version of the bill.)
None.
B. Amendments:
None.
This Senate Bill Analysis does not reflect the intent or official position of the bill’s introducer or the Florida Senate.