Exemption of Unemployment Compensation

The general rule is that a debtor may exempt proceeds from an exempt asset held in the debtor’s bank account so long as he can trace the funds to the exempt asset. Most bankruptcy courts interpret Florida’s asset exemptions to apply to the exempt assets and its proceeds derived from the asset.

There is at least one exception to this general rule as explained in a recent Florida bankruptcy decision. In this case the Chapter 7 bankruptcy debtor money in his bank account which he traced to unemployment compensation. Florida Statute 443.051 exempts from creditors all unemployment benefits “due to” Florida residents. The bankruptcy court said the money was not exempt because the statute exempted only the “benefits due” and not the proceeds. Once unemployment money was received the benefits were no longer “due” and therefore no longer exempt in bankruptcy.

The bankruptcy court based its conclusion on a detailed grammatical analysis of the statute. The court discussed whether “due” in the phrase “benefits due” is a attributed adjective, a postpositive adjective, or a predictive adjective. The decision is at least interesting reading for English majors.

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