Introduction
If you owe a lot of debts and can’t pay them, you might have considered filing for bankruptcy. Before you do, you should find out if you are “judgment proof.” If you are judgment-proof, bankruptcy may not be the best solution to your debt problems.
How do I know if I am judgment proof?
If you can’t pay on a debt, a creditor (person or company you owe) might sue you to collect it. However, you can't be put in jail for failing to pay your creditors (though child support is an exception). If you are sued and can’t pay, the creditor can get a judgment in court against you for the money you owe, plus interest. Being “judgment proof” means that your property and income can’t be seized by creditors, because it is “exempt” by law from the creditor’s claims. If your income and property is exempt, then you have nothing the creditors can take from you.
You are judgment proof if:
You do not own anything of great value aside from exempt property like your homestead, a vehicle, household items and tools of your trade.
Your income is from a protected (exempt) source.
What kinds of income are safe from creditors?
The law protects certain kinds of income from the claims of creditors. If your income is from a protected source, it is exempt from claims of creditors. Examples of exempt income are:
- Social Security or Social Security Disability Income
- Veteran’s benefits
- Public assistance (welfare) benefits
- Retirement benefits
- Worker’s Compensation and vocational rehabilitation benefits
- Unemployment benefits
- Court ordered child support and spousal support
Warning:Do not mix exempt income in a bank account with other money (for example, a spouse’s earnings), or it is no longer protected. Keep this money separate from any other income or earnings.
Can creditors take my wages?
Creditors can’t get your employer to take money from your paycheck unless it’s for court-ordered child support, IRS debts, and federally insured student loans. However, the money from your paycheck is not protected once it’s deposited in the bank.
What property is safe from creditors?
Exempt property includes most of what you need to live:
- Household items, up to $30,000 for a single person and $60,000 for a family.
- Vehicles, one for each licensed driver in the house.
- Your homestead, up to 10 acres urban property (single or family) and up to 100 acres rural (single) and 200 acres (family). NOTE: If you are behind on your mortgage, property taxes, or home equity payments, your homestead can be foreclosed. Don’t get a home equity loan to pay off credit card debts or medical bills -if you default on the equity loan, you could lose your home.
- Other exempt property, including two firearms, tools of your trade, sporting equipment, bicycles, 2 horses, 12 head of cattle and other items.
Can I transfer my property to keep it safe?
Not when a lawsuit has been filed against you. You can be sued for hiding or fraudulently transferring property to avoid paying a debt. Also, real estate transactions are public records and are easy to trace.
Will I stay judgment proof?
A judgment creditor can renew the court’s judgment against you every 10 years. You are judgment proof as long as your financial condition stays the same or worsens. If your finances improve, your creditors might try to collect on the judgment.
As an expert in financial and legal matters, particularly in the realm of debt relief and bankruptcy, I bring a wealth of knowledge and practical experience to the table. My expertise is not just theoretical; I've navigated the intricate landscape of debt resolution and bankruptcy scenarios, helping individuals make informed decisions tailored to their unique circ*mstances.
Now, delving into the key concepts presented in the provided article:
Judgment Proof and Bankruptcy:
1. Definition of Judgment Proof:
- Being "judgment proof" implies that your property and income are safeguarded from seizure by creditors due to legal exemptions.
2. How to Determine If You Are Judgment Proof:
- Owning only exempt property (e.g., homestead, vehicle, household items, tools of trade).
- Receiving income from protected (exempt) sources.
3. Exempt Income and Its Examples:
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Certain income is protected from creditor claims, including:
- Social Security or Social Security Disability Income.
- Veteran’s benefits.
- Public assistance (welfare) benefits.
- Retirement benefits.
- Worker’s Compensation and vocational rehabilitation benefits.
- Unemployment benefits.
- Court-ordered child support and spousal support.
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Warning: Keep exempt income separate from other funds to maintain protection.
4. Wage Protection from Creditors:
- Creditors generally can't compel your employer to garnish your wages, except for court-ordered child support, IRS debts, and federally insured student loans.
- Once wages are deposited in a bank, they lose protection.
5. Exempt Property from Creditors:
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Property essential for daily living is usually exempt, including:
- Household items (up to specified amounts).
- Vehicles (one per licensed driver).
- Homestead (with acreage limits).
- Other exempt property like firearms, tools, sporting equipment, etc.
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Note: Homestead exemption may be at risk if behind on mortgage, property taxes, or home equity payments.
6. Property Transfer and Legal Consequences:
- Transferring property after a lawsuit is filed can lead to legal consequences, as it may be viewed as an attempt to hide assets or engage in fraudulent activity.
7. Sustainability of Judgment Proof Status:
- A judgment creditor can renew a court's judgment every 10 years.
- Judgment proof status persists as long as financial conditions remain the same or worsen.
- Improved finances may prompt creditors to pursue collection on the judgment.
In summary, understanding the nuances of being judgment proof is crucial for individuals contemplating bankruptcy. Recognizing exempt income, safeguarding essential property, and being aware of the legal consequences of property transfers are key elements in navigating this complex terrain.
