Judgment Proof: What You Need To Know

Do you have a collection agency constantly calling about credit card debt or medical bills? If you ignore these payments for long enough, your creditors could file a lawsuit to bring a judgment against you. However, if you have no income or assets to pay off the debts, you could be considered judgment-proof. While it’s not a perfect solution to your debt issues, being judgment-proof could protect you from being forced to pay your debts during your time of need. Follow along below to find out if you meet the qualifications for judgment-proof status.

What Judgment-Proof Means

If you owe creditors and they successfully sue you to pay the debt, being judgment-proof may prevent them from collecting from you. Simply put, being judgment-proof means you don’t have the assets to pay. You’d have to meet some specific criteria to be considered judgment-proof, though, which we’ll discuss later. 

It is important to note that being judgment-proof may not stop your creditor from filing a lawsuit against you to collect a payment and may not stop the court from issuing a judgment against you. Judgment-proof status can, however, stop authorities from collecting the debt. For clarity, it may be helpful to think of judgment-proof status as “collection-proof” as well.

For example, if you are being contacted by collection agencies and do not respond to them, they may obtain a default judgment from a court that mandates that you pay the debt. While a court did issue a judgment against you, if you are truly judgment-proof, you will not have to make payments toward the debts or risk any of your remaining assets to garnishment.

How You Can Prove You Are Judgment-Proof

The two main factors that you can use to prove that you’re judgment-proof are your income and your assets. If you’re unemployed and have no other source of income, the court will not be able to garnish a portion of your wages. There are certain sources of income, such as Social Security payments and other types of government benefits, that are exempt from garnishment.

If you have no valuable assets, such as a house, car, or money in a bank or investment account, the court will also not be able to seize any of these to pay your debts. There are also certain assets that are exempt from garnishment that are covered below.

In some cases, a small amount of income or low value assets may be exempt from garnishment. The amount depends on state law and therefore changes from state to state. It’s worth consulting a legal professional to understand your state’s laws if you find yourself in this situation.

What Senior Citizens Should Know About Being Collection-Proof

Senior citizens are often collection-proof because all of their income comes from types of payment that are exempt from garnishment. The most common types of exempt income for seniors are Social Security, Supplemental Security Income (SSI), Social Security disability (SSD), public or private pensions, and retirement accounts. If you are elderly or retired and all of your income comes from one of these sources or other types of public assistance, you may be able to claim judgment-proof status.

Defining Nonexempt And Exempt Income

While state laws defining the amount of income and assets can be seized to pay for debts, federal law mandates that certain types of government benefits are exempt from garnishment. According to the Consumer Financial Protection Bureau, these benefits include:

• Social Security benefits
• Supplemental Security Income (SSI) benefits
• Veteran’s benefits
• Civil service and federal retirement and disability benefits
• Servicemember pay
• Military annuities and survivor benefits
• Federal student aid
• Railroad retirement benefits
• Financial assistance from the Federal Emergency Management Agency (FEMA)

However, it is important to note that if your debt is for federal taxes, federal student loans or child support, the benefits above may not be exempt from garnishment.

Examples Of Exempt And Nonexempt Assets

While the value and specific nature of exempt property varies from state to state, the chart below shows some examples of exempt and nonexempt assets.

How You Can Lose Judgment-Proof Status

What Happens When You’re No Longer Judgment-Proof?

If your income or assets increase, even after a court deems you judgment-proof, your creditors may be able to begin garnishing your wages or seizing your assets. As we mentioned above, judgment-proof status is temporary and based on your current income and assets. If you gain income or assets above the basic minimum set by the state to allow you to survive, your creditor may be able to seize them.

One strategy that may be available to you if you are no longer judgment-proof is to file bankruptcy. Chapter 7 bankruptcy allows you to retain some exempt assets while selling the rest to pay off your debt. While it can be a painful and complicated process, it can offer you a fresh start on your financial future.

Judgment-Proof Status FAQs

Below are some of the most common questions about judgment-proof status.

Are senior citizens judgment-proof?

Senior citizens are often judgment-proof because of the nature of their income, but they are not automatically judgment-proof. As mentioned above, certain income and assets such as Social Security benefits, 401(k) retirement accounts and other government benefits are exempt from garnishment. If a senior citizen completely relies on these types of income or assets, they may be judgment-proof.

What happens if I can’t pay a judgment?

If you have nonexempt income and assets below the level set by your state, you may not have to pay the debts mandated by a judgment. However, that may not stop your creditor from suing you to attempt to collect the payments.

Should I tell a creditor I’m judgment-proof?

Telling a creditor that you are judgment-proof may help you to avoid a judgment. If a creditor knows they do not have the ability to retrieve any of your money or assets, they may not bother suing you to get a judgment against you. However, as we mentioned above, being judgment-proof cannot stop your creditor from suing you. If the creditor wishes to get a judgment against you, they can do that no matter your asset or income level.

How do I make myself judgment-proof?

You can make yourself judgment-proof by having little to no income or assets. You may be tempted to give away some of your valuable assets to friends or family to avoid having them seized, but you should be careful about this strategy. Depending on the state you live in, this could be characterized as fraud. We recommend consulting a legal representative from your state to discuss your options, before you make any decisions about your assets.

The Bottom Line: Judgment-Proof Status Can Protect Your Assets, But It Comes With Challenges

You can achieve judgment-proof status if you have little to no income or assets from which your creditors can retrieve the debt you owe them. If you rely on government benefits that are exempt from garnishment and have no valuable assets, you could be judgment-proof. However, it is important to remember that judgment-proof status is temporary. If you increase your income or assets, your creditors may be able to seize them.

The best way to avoid needing judgment-proof status is to stay current on your debt payments. Get the Rocket Money℠ app so you can easily track what you owe and pay bills on time.