How would you like to be deemed “judgment proof”? If nothing else, it sounds like a really good designation in life.
Judgment proof is a legal term that could apply to anyone, but generally speaking is used to describe seniors and people with disabilities who live on fixed incomes.
And while it may sound good to be “judgment proof”, there is a good news/bad news aspect to it, at least from a legal standpoint. First, the bad news.
Being “judgment proof” means you don’t have enough money or assets to satisfy a court judgment against you. In short: you’re too poor to pay.
The good news is … well, you’re too poor to pay!
If a debt collector gets a court judgment against you, it’s practically worthless. What little income and assets you have are protected legally so you don’t become destitute and end up homeless, penniless or both.
Judgment Proof Income
Federal law recognizes seniors and the disabled would become impoverished if a debt collection agency were allowed to go after all sources of income so some are designated as exempt.
The sources of money that have exempt status usually are federal or state funds that hardly cover the bare necessities of food, clothing and shelter.
Income from the following sources are considered exempt:
- Social Security
- Supplemental Security Income (SSI)
- Assets loaded on to a Direct Express card or prepaid account
- Veterans Administration
- Federal Railroad retirement, unemployment and sickness
- Federal Employee Retirement System
- Civil Service Retirement System
- Money received for child support or alimony
Two months of income from those sources is exempt from any court judgment and can be stored in a checking or savings account.
However, if you have more than two months of income from any of those sources in your bank account, debt collectors may petition to garnish the account for the dollar amount over two months. That can happen when you mix funds from another source with the funds listed above.
For example, you might already have two months of income from Social Security checks in your account when you decide to sell your car for $2,000 and put the money in the same account. That extra $2,000 could be subject to garnishment, though it seldom happens.
There also are occasions when people detailing their assets to lawyers, ignore accounts that are not judgment proof, according to Steve Blutza, administrative director for Legal Advocates for Seniors and People with Disabilities.
“The only time we really have a problem protecting money is when our client is not forthcoming about their assets,” Blutza said. “We’ll find out they have a $50,000 CD sitting around and they’ll say “Oh, I was saving that for my kids.’
“Well guess what? The creditors will tell you that you could have used that money to pay your debts.”
Judgment Proof Assets
In theory, seniors or people with disabilities could have assets that could be sold and the money turned over to debt collectors or creditors, but that rarely, if ever, occurs.
The most common example of that would be if someone has lived in a home for a long time and has significant equity. The house could be sold, but it’s far more likely that the collection agency would put a lien against it rather than sell the home.
“A collection agency might get a chunk of money for selling the house, but throwing a senior or disabled person out on the street is a public relations nightmare,” Blutza said.
The same usually is true with automobiles.
“We’ve represented thousands of cases and there might be one or two where a debt collector went after somebody’s car,” Blutza said.
You might consider other assets of yours valuable, but it’s not likely a debt collector will have the same opinion. The time and cost required to sell household goods, like furniture or china isn’t worth the return debt collectors would get.
How to Prove You Are Judgment Proof
If you are judgment proof and debt collectors get overly aggressive trying to collect on debts, there is a simple resolution: either hire a lawyer or draft a “Cease Communications” letter to the third-party debt collection agency.
Consumers are protected by the Fair Debt Collection Practices Act (FDCPA), a federal law that prohibits debt collectors from using unfair, deceptive or abusive practices in an attempt to collect money.
The fact that you are judgment proof should be enough to dissuade debt collectors from harassing you, but if not, get a lawyer and that should put an end to the problem.
If you want to try and handle it yourself, use the format in this sample of a collection proof letter, and that should do the job.
Judgment Proof Letter
Debt Collector Company Name
Account number for debt
Dear (debt collector company name):
This is a notice to you to cease communications with me in attempting to collect a debt.
My income is derived from protected federal benefits (Social Security, VA, etc.), which are protected from garnishment to pay debts to a company or individual.
If you sell this debt to another company, please provide them with this information.
Thank you for your cooperation.
Exceptions to Judgment Proof Exemptions
Being judgment proof does not work if you are behind on child support and alimony, federal student loan payments or back taxes owed. These debts must be paid, regardless of income status.
The government could garnish income from Social Security and Social Security Disability Insurance or even a tax refund until those payments are caught up.
The best advice is to keep current with payments in these categories, especially child and spousal support.
Can I Be Judgment Proof Permanently?
Being judgment proof may not be a permanent situation, so be careful about flaunting this status.
If you’ve been out of work for a while, but expect to get another job, you probably are judgment proof on a temporary basis.
However, if you don’t think your financial situation will change, which is common, especially among seniors and people with disabilities, then you likely are permanently judgment proof.
People who know they are barely squeaking by and have judgment proof status, often will ignore claims against them. They won’t bother hiring an attorney to represent them in a court case because there is nothing for the judge, or debt collectors, to take.
What Happens When You Are No Longer Judgment Proof?
Taking a good-paying job, receiving an inheritance, selling a home that has suddenly skyrocketed in value or holding the lucky ticket in a lottery are a few examples of how someone’s financial struggles can quickly reverse.
If you have been able to duck creditors for years because you were judgment proof and then suddenly come into a financial windfall, expect to hear from those creditors again.
Court judgments are enforceable for decades, as long as they are renewed by the creditors and that can mean trouble if your status as judgment proof suddenly changes.
About The Author
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- NA. (2017, February 9) Can a debt collector take my Social Security or VA benefits? Retrieved from https://www.consumerfinance.gov/ask-cfpb/can-a-debt-collector-take-my-social-security-or-va-benefits-en-1157/
- NA. (2010 July). Fair Debt Collection Practices Act. Retrieved from https://www.ftc.gov/system/files/documents/plain-language/fair-debt-collection-practices-act.pdf
- Williams, F. (2014, May 6) Judgment-proof debtors have an imperfect shield. Retrieved from https://www.creditcards.com/credit-card-news/judgment_proof-debtors-1282.php