Are you Judgment Proof?

Surprisingly, the best approach for some people who are deeply in debt is to take no action at all.

If you’re living simply (that is, with little income and property) and look forward to a similar life in the future, you may be judgment proof. This means that anyone who sues you and obtains a court judgment won’t be able to collect-simply because you don’t have anything they can legally take. (As a famous song of the 1970s said, “Freedom’s just another word for nothing left to lose.”)

Except in highly unusual situations (for example, if you are a tax protester or willfully refuse to pay child support), you can’t be thrown in jail for failing to pay your debts.

Normally, creditors cannot take your property or income without first suing you and obtaining a court judgment (except for taxing authorities and student loan collectors).

Even if the creditor is armed with a court judgment, the law prevents creditors (except the IRS, of course) from taking property that is exempt under your state’s general exemption laws, including food, clothing, personal effects, and furnishings. And creditors won’t go after your nonexempt property unless it is worth enough to cover the creditor’s costs of seizure and sale.

Before taking property, creditors usually try to go after your wages and other income. But a creditor can take only 25% of your net wages to satisfy a court judgment, unless it is for child support or alimony. Often, you can keep more than 75% of your wages if you can demonstrate that you need the extra amount to support yourself and your family.

Income from a pension or another retirement benefit is usually treated like wages. Creditors cannot touch public benefits such as welfare, unemployment insurance, disability insurance, SSI, or Social Security.

Thanks to Stephen Elias, Attorney at Law