The phrase “judgment proof” often comes up in relation to bankruptcy and court orders. What does it mean to be “judgment proof?” Is it even possible?
What Does Judgment Proof Mean?
The common definition of “judgment proof” is either you are too broke to pay off the debt, or you only have income and assets that are legally protected.
In truth, the term is a slight misnomer. A creditor can still obtain a judgment against you, but they may not be able to execute that judgment. For this reason, some people prefer the slightly different term “collection proof.”
When you are “judgment proof,” creditors cannot seize money or assets from you.
What Kind of Assets and Income are Exempt?
While one way to be judgment proof is to have no proper income, another is only to have assets and income that cannot be seized. This generally includes the following:
- Income from government benefits such as unemployment or disability.
- In Texas, your primary residence.
- Exempt personal property, which generally includes a single vehicle up to a certain value. In Texas, it also includes personal property up to $50,000 for an individual, or $100,000 for a family, tools of your trade, clothes, and pets.
If you don’t have assets or income that is not exempt, you are “judgment proof.”
Is this a Permanent Status?
No. When you are ruled “judgment proof” (or more accurately execution proof), it is intended to protect you until you get back on your feet. When your financial situation improves, you are vulnerable to collections and wage garnishment again. (For example, they can’t garnish your wages if it would drop you below minimum wage, but a significant raise or promotion that puts you above it can make you vulnerable again.
In a few cases, such as permanent full disability, somebody may remain “judgment proof”; in this case creditors will generally write off the debt. This is, however, very rare, and it is a factor of your income not changing rather than the intent.
Can You Transfer Property to Become “Judgment Proof?”
One way people try to reach a “judgment proof” status is to temporarily or permanently transfer property. In some jurisdictions this is considered fraud, although it is rarely prosecuted. The burden is on the creditor to prove that you made the transfer without good faith, that is to say with the intent of avoiding judgment.
In most cases, if you transfer property to a relative to ensure it stays in the family, you are likely to get away with it, but temporary transfers can cause problems; and if you transfer it back the judgment is likely to remain in place. Thus, while it is unlikely to get you prosecuted, it is not generally a good idea.
How Do You Tell a Creditor You are “Judgment Proof?”
If you believe you are “judgment proof” due to your current financial situation, you should generally not respond to debt collectors. However, if you are sued by a creditor, you should always file a response. This is known as the original answer to the lawsuit and it helps slow down the case and can result in it being dismissed. In the worst case scenario, you have a judgment against you, which you can then appeal.
However, you should talk to a qualified attorney before responding or making any communication to your creditors. Your attorney can help you determine the best path forward to ensure that you are not forced to pay money you do not have.
To find out more about how to handle creditors when you are permanently or temporarily broke, contact Warren & Migliaccio, LLP Attorneys at Law today. We can help you negotiate the situation and find the best way to get back on your feet.