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Are You Judgment-Proof?

Being sued can be scary. If you lose the case, the plaintiff will get a court judgment, which can be used to collect money out of your bank account or wages. 

But some people are considered "judgment proof," and safe from collection efforts.  What does it mean to be "judgment proof?"

"Judgment Proof" is not a legal term, although we often receive requests for a legal definition of the phrase at the Law Library. In layman's terms, a person is judgment proof when even if a creditor wins a lawsuit and obtains a judgment, the creditor will not be able to collect. In such cases it makes no sense for a creditor to take that person to court, and some will voluntarily desist.

People with very little income and property, and no expectation of a change for the better, have little to lose if they are sued by a creditor. You cannot go to jail for bad debt. California Constitution Article 1, Section 10. Both state and federal laws protect essentials such as basic clothing, ordinary household furnishings, food, child support payments, and Social Security and disability benefits from being taken to pay for a judgment. 42 U.S.C. § 407; California Code of Civil Procedure (CCP) §§ 704.010 – 704.210. If your credit rating is already badly damaged, doing nothing in response to a creditor's lawsuit could be an effective way of dealing with the situation.

Can someone who is judgment proof still receive a judgment against them?

Yes! Being judgment proof does not stop the court from granting a judgment against you. If a creditor or collection agency sues, the court will decide based on the evidence presented by both parties, the law, and common sense. If you don't show up in court, the creditor will win the lawsuit by default. This is known as a "default judgment."

If you have a judgment against you, and all your assets and income are exempt from collection, you may be able to stop wage garnishment and bank levies. (For more information about this, see the "How to Ask the Court to Stop or Reduce a Wage Garnishment" and "How to Ask the Court to Stop or Reduce a Bank Levy" Step-by-Step Guides, available for free on our website.) If the collection agency knows prior to filing suit that it will be unable to collect, it may decide it's not worthwhile. Notifying the collection agency of your judgment proof status can't hurt, and might prevent a lawsuit.

Remember, however, that just because you are judgment proof does not mean that the creditor will not sue you. Some, if not most, of the collection agency attorneys are hired only to obtain a judgment against a debtor; collection of that debt is someone else's job.

How long can a judgment remain on my credit report?

Judgments, which are detrimental to your credit rating, typically remain on your credit report for seven years. In California, however, judgments can be enforced for ten years and then renewed ad infinitum as soon as five years after that. CCP §§ 683.010 – 683.220. This can result in a judgment after a lawsuit remaining on your credit report for much longer than the standard seven-year reporting period. See the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq.

How can a judgment creditor collect on my judgment?

You may be immune to one form of judgment collection, yet susceptible to another. For example, if you are not working, a creditor cannot hope to garnish your wages. But if you own a home, the creditor may be able to place a lien on it. You would then be unable to sell the home without paying the creditor out of the proceeds.

In addition, the fact that you are not currently working does not mean you don't have money in a checking or savings account. Some types of payments, such as child support and government benefits, are exempt from collection. But as long the money in your bank account is not exempt, the creditor can request a bank levy and seize it. In addition, if you do find employment in the future, the creditor may then ask the court for a wage garnishment order.

Am I a true judgment proof debtor?

A true judgment proof debtor is not employed and has no future prospects of finding employment, lives on government benefits (CCP § 704.120), pensions (CCP § 704.115), or retirement (CCP §704.110), and has no funds in his or her checking or savings accounts that do not stem directly from exempt (protected) funds. If you are retired or permanently disabled and have no income other than retirement and other benefits, you can be confident that you are truly judgment proof.

Can my judgment proof status change?

Yes, even a true judgment proof debtor may become eligible for collection efforts if their income increases. You may find a job, win the lottery, or receive an inheritance—who knows?

By Kate Fitz, Public Services Librarian
December 4, 2012