What Does It Mean to Be Judgment Proof?

Creditors can use various methods to seek payment on past due debts, including real estate liens, bank account levies, and wage garnishment. Once a creditor obtains a money judgment on an owed debt, the creditor will use whatever means it deems fit to secure payment. However, some individuals will qualify as “judgment proof” for various reasons. This term is a bit misleading, however. An individual who is judgment proof is not immune from debt collection. A creditor can still obtain a money judgment against a judgment proof individual, but it will be unable to collect on the judgment.

How Is a Person Judgment Proof?

A person qualifies as judgment proof if he or she does not own any assets a creditor could seize to secure payment on a money judgment. For example, an individual who does not own real estate or have a bank account would be judgment proof. An individual who works a very low-paying job would not qualify for wage garnishment. Additionally, recipients of certain income sources are exempt from money judgments. These income sources include:

  • Unemployment benefits
  • Social Security benefits
  • Veteran’s benefits
  • Child support
  • Federal employee retirement benefits
  • Civil servant retirement benefits
  • Supplemental Security Income
  • Public assistance benefits

Federal law also limits how much money a creditor can garnish from a debtor’s wages. If the debtor’s wages do not qualify for wage garnishment, he or she is essentially judgment proof.

Why Judgment Proof Status Isn’t Necessarily a Good Thing

It’s important to note that judgment proof status is not permanent. A person’s financial situation can change, such as with a promotion, pay raise, property inheritance, or other unexpected windfall. A money judgment lasts for a long time and a creditor can appeal for a renewal on an expired judgment, so it’s never wise to assume that judgment proof status will last forever.

Once a person’s judgment proof status changes, creditors will look for ways to secure their payments. For example, if a judgment proof individual unexpectedly inherits a piece of real estate, the creditors may place a lien on the real estate to pay back the debt. Whether a person receives a money judgment, or encounters a money judgment later after a change in financial status, an attorney will be a valuable asset for handling the next steps.

In some situations, it’s best to avoid responding to a money judgment and simply allow the creditor to obtain a default judgment, instead of paying attorney’s fees and other costs to handle the case. In other cases, it’s best for the debtor to respond to the lawsuit and work with his or her attorney to reach an acceptable result. In some cases, a creditor will allow the debtor to submit a one-time payment that is marginally lower than the full debt amount to simply settle the matter. In other cases, the creditor will pursue the full amount of the debt and may even seek other compensatory damages for the costs of pursuing the debtor.

In any of these situations, an attorney can advise the best course of action. There are also many public programs available that offer financial coaching and other assistance that a debtor can use to make repaying debts a bit easier. An attorney should be able to advise a debtor about his or her options in all cases.

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