Florida Business Debt Laws

Florida is where Hamilton & Merchant is based and the state whose rules we know most deeply. Most of what follows is more protective of a prepared business owner than the collection calls suggest. This is a plain-English guide, not legal advice; where a situation needs a lawyer, we say so and bring one in from our partner network.

Confessions of judgment are void in Florida

Many merchant cash advance contracts include a confession of judgment: a clause in which the merchant agrees, at signing, that the funder can have a court enter a judgment without a lawsuit if the account defaults. Florida Statute 55.05 makes every power of attorney to confess judgment, signed before an action is brought, absolutely null and void. The rule dates to 1828 and it has not softened. A funder cannot walk into a Florida court with a pre-signed confession and leave with a judgment.

Two cautions. First, a judgment validly entered in another state must still be recognized here under the full faith and credit clause, so a confession that was lawfully entered elsewhere can be domesticated in Florida. Second, since August 30, 2019, New York's CPLR 3218 has barred filing confessions of judgment in New York against debtors who do not reside or do business there, which closed the route most funders used against Florida merchants. If a funder entered a New York confession against your Florida business after that date, it may be improper and vacatable. That is a question for an attorney, and one we can help you put to the right one.

The Commercial Financing Disclosure Law

Florida's Commercial Financing Disclosure Law, passed as House Bill 1353 and signed on June 23, 2023, applies to commercial financing transactions consummated on or after January 1, 2024, with a business located in Florida, in amounts of $500,000 or less. It covers loans, open-end credit, and accounts receivable purchase transactions, which is the legal form of a merchant cash advance.

Before closing, the provider has to disclose the total amount of funds provided, the total dollar cost of the financing, the payment amounts and frequency, and the term. The law does not require an annual percentage rate, which is why the annualized cost of an MCA still has to be worked out by the merchant. Enforcement belongs exclusively to the Florida Attorney General, with civil penalties of $500 per violation up to $20,000, and higher penalties for violations that continue after notice. There is no private right of action, so the disclosure is a tool for reading a deal clearly, not a basis for a lawsuit.

The head-of-family wage exemption

A judgment on a personal guarantee usually ends up as an attempt to garnish the owner's wages. Florida Statute 222.11 provides that all of the disposable earnings of a head of family that are $750 a week or less are exempt from garnishment, and that earnings above $750 a week cannot be garnished either unless the person agreed to it in writing. A head of family is anyone providing more than half the support for a child or other dependent. Exempt earnings deposited in a bank stay exempt for six months if they can be traced.

Owners who are not a head of family are still protected by the federal Consumer Credit Protection Act limits. Watch for the written waiver: some guarantees include language agreeing to garnishment above the exempt amount, and that language is enforceable.

The homestead exemption

Article X, Section 4 of the Florida Constitution protects a primary residence from forced sale by most judgment creditors, with no limit on the value of the home, on up to half an acre inside a municipality or 160 acres outside one. Because the protection is constitutional, the legislature cannot narrow it. It does not protect against the mortgage, taxes and assessments on the property, or claims by contractors and suppliers who worked on the home. For most owners facing a judgment on a business guarantee, the house is safe.

Statutes of limitations

Under Florida Statute 95.11, a lawsuit on a written contract must be filed within five years of the breach, and on an oral contract within four. The clock starts when the breach occurs, not when the creditor discovers it. On an installment obligation each missed installment generally starts its own clock, so older portions of a claim can expire while newer ones remain live. A creditor that waits too long can be met with a limitations defense.

Usury, and why it often does not reach an MCA

Florida Statute 687.02 declares any loan, advance of money, line of credit, or forbearance that charges more than 18 percent simple interest per year usurious when the amount is $500,000 or less; above that amount the ceiling is 25 percent. Statute 687.071 makes willfully charging more than 25 percent a second-degree misdemeanor and more than 45 percent a third-degree felony. A lender that charges a usurious rate forfeits the interest.

A merchant cash advance is written as a purchase of receivables, not a loan, so these caps usually do not apply. Courts have been willing to look through the label. In LG Funding, LLC v. United Senior Properties of Olathe, LLC, decided by New York's Appellate Division, Second Department, in 2020, the court asked three questions: whether the agreement has a real reconciliation provision that adjusts payments to actual receipts, whether it has a finite term, and whether the funder has recourse if the merchant goes bankrupt. When the funder is entitled to repayment under all circumstances, the transaction looks like a loan. That analysis is licensed legal work, but the three questions are worth asking about any contract in your stack.

UCC liens and frozen accounts

Florida has adopted Article 9 of the Uniform Commercial Code as Chapter 679 of the Florida Statutes. A UCC-1 financing statement filed against the business puts the world on notice of the funder's claimed security interest in its assets, including receivables and deposits. After a default, funders send notices to banks and card processors demanding that receivables be turned over, which is how accounts get frozen and card batches get diverted. Some of these notices claim more than the contract actually grants. The right response depends on what was signed, which is the first thing we read.

Sales tax and payroll tax follow the owner

Sales tax collected from customers is state money held in trust. Florida Statute 213.29 makes any person who willfully fails to collect, account for, or pay over that tax, including an officer or director with administrative control, personally liable for a penalty equal to twice the tax. The IRS applies its own trust fund recovery penalty to unpaid payroll taxes. This is why tax arrears are the first priority in every plan we build, ahead of every funder.

What the federal enforcers have said about MCA conduct

The Federal Trade Commission has treated some funder practices as unfair and deceptive. In 2021 Yellowstone Capital paid more than $9.8 million to settle charges that it kept withdrawing money from businesses' accounts after their balances were repaid and misrepresented the amount of financing owners would receive; the FTC later returned that money to 7,731 small businesses. In 2022 RCG Advances and its owner were permanently banned from the merchant cash advance industry and ordered to pay $2.7 million after allegations that included deceiving customers about terms, forcing confessions of judgment, and threatening violence and false criminal accusations. If a funder's conduct on your file looks like either case, keep the records and tell us.

How we use this in a negotiation

None of these rules make a debt disappear. What they do is change the leverage. A funder that cannot use a confession of judgment, cannot reach a homestead, and would face a head-of-family exemption on wages has fewer enforcement options than its collection calls suggest, and that is the position we negotiate from. We read the contract, identify what the funder can and cannot actually do, and open the workout from there.