However, being judgment-proof won’t last forever, and the exact length of time depends on your state’s laws. Here’s what you need to know about being considered judgment-proof.
Definition and Example of Being Judgment-Proof
If you don’t have enough income or assets to satisfy a court judgment that’s been brought against you, you may be considered judgment-proof. Some states shield certain assets from being repossessed in a court judgment, such as homes. Certain income is judgment-proof, too, like child support. For example, let’s say you default on a credit card and your lender sells your debt to a collection agency. The collection agency sues you for the money you owe and receives a judgment against you. However, you don’t earn much more than minimum wage and don’t have any assets for your creditor to seize. You do receive monthly child support payments, but since this income is protected, you’re considered judgment-proof.
How Being Judgment-Proof Works
If you default on consumer debt such as a credit card or personal loan, your creditor can sue you for the money you owe. Once they take you to court and receive a judgment against you, they can take steps to garnish your wages. However, if you’re judgment-proof, your creditor won’t be able to collect on your income or assets. Some people are deemed judgment-proof because they earn income that is legally protected from garnishment, so a creditor can’t collect it based on a judgment. Types of income that can’t be garnished include:
Social Security Unemployment benefits VA benefits Child and spousal support Federal retirement benefits Federal or state disability benefits Public assistance benefits
Others are unemployed or earn less than the wage garnishment limits imposed by federal and state laws. Federal law limits creditors to taking the lesser of either 25% of your disposable earnings or 30 times the federal minimum wage ($7.25 an hour). Your creditors will likely continue to contact you and try to collect on what you owe. In this situation, you may want to send your creditor a judgment-proof letter, which tells your creditors to stop contacting you. In some cases, it may also prevent them from taking you to court. Before sending a judgment-proof letter, it’s a good idea to speak to an attorney. Informing your creditor that you’re unable to repay the money you owe can negatively impact your credit and make it difficult to rent an apartment or take out a loan in the future.
