If you’ve learned there’s a court judgment against you, you may be wondering what happens next and if there's anything you can do. There are different ways you can reduce the negative impact a judgment can have on you. This article will go into detail about what you can do if you have a judgment you can’t afford to pay, how creditors collect on debts, and property exemptions under federal and state law.
Written by Attorney Tori Bramble.
Updated January 11, 2022
If you’re sued for money you owe a creditor and the creditor wins the case, the judge will issue a court judgment against you. The creditor is called a judgment creditor. You’re a judgment debtor. Judgment creditors can collect debts using the courts by taking a judgment debtor's assets. Finding out you have a court judgment against you can be scary. You risk losing your paycheck, house, or car.
But you have rights if there’s a judgment against you. Here we’ll talk about what you can do if you have a judgment you can’t afford to pay, how creditors collect on debts, and property exemptions under federal and state law.
I Have a Judgment Against Me. Do I Need to Act Now?
If you’ve learned there’s a court judgment against you, act right away. Judgment enforcement time limits vary. In some states, the collection process begins immediately. This depends on where you live and what court is holding the money judgment. For example, in California Small Claims court, a creditor’s judgment debt collection efforts can’t start until 30 days after it’s awarded a judgment. But in federal court, the process can start immediately.
If a creditor won a money judgment against you in a state other than where you live (also called a foreign judgment), the process will be delayed. The judgment creditor will have to get the out-of-state judgment approved by your state’s court before it can collect. Also, there are usually different rules for the enforcement of foreign judgments. You should contact a lawyer if you have questions.
Don’t ignore judgments. If you’re not proactive, you’ll likely be powerless to protect your property. Being proactive in working out a judgment repayment solution can help you avoid more aggressive collections by creditors.
I Can’t Afford To Pay the Judgment. Can They Make Me Pay?
Be proactive if there’s a judgment against you. Here are some of the options for paying the judgment on your own.
You may be wondering how to take care of the judgment without having your wages or bank account garnished. You have a few options. You can try to set up a voluntary repayment plan with a judgment creditor. Installment agreements, debt management plans, and debt settlement are all considered voluntary repayment options.
If you want to pay your debts over time without coming up with a lump sum, an installment agreement could be an option. If you’re behind on your debt, contact your creditor and ask if they’ll allow you to make payments on your debt in monthly installments until it's paid off. Usually, the IRS offers taxpayers installment agreements if they can’t pay all their taxes in one payment.
Debt Management Plans
With a debt management plan, you can pay less than what you owe in one monthly payment. This repayment plan isn’t a loan and your debts must be paid in full. But this plan may get you out of debt faster. To find out if a debt management plan is a good option, you can set up a free consultation with a licensed creditor that works with an accredited nonprofit credit counseling agency.
With debt settlement, you may be able to negotiate to pay less than the full amount you owe. To successfully settle a debt, you’ll usually need to have a lump-sum amount you can pay to wipe out the debt. Some creditors are willing to settle debts for half of what is owed or less.
It’s best to negotiate directly with a lender instead of using a debt settlement company. Hiring a third party to settle your debts for you can take a long time. If you don’t set up a debt settlement quickly, the judgment creditor can compel you to pay through wage garnishment or a bank levy.
Wage garnishment happens after a judgment is entered and the court orders your employer to withhold a portion of your paycheck and send it directly to the judgment creditor until the debt is repaid. Judgment creditors favor garnishments because it allows them to take cash directly from your paycheck before it gets into your hands.
If you’re notified your paycheck is going to be garnished, you have legal rights, including caps on how much a creditor can take from each paycheck.
Federal Garnishment Rules
Under federal law, creditors can only garnish the lesser of:
25% of an employee's weekly disposable earnings, or
The amount that their weekly disposable earnings exceeds 30 times the federal minimum wage (currently $7.25/hour).
State Garnishment Rules
States can provide a better wage garnishment exemption, but it can’t be less than federal law. For example, Colorado’s garnishment rule is more generous than the federal guideline. In Colorado, a creditor can only garnish the lesser of:
20% of your weekly disposable earnings, or
The amount your weekly earning exceeds 40 times Colorado’s minimum wage or the federal minimum wage, whichever is higher.
Another powerful and favored collection tool judgment creditors use is a bank levy. Like wage garnishment, bank levies give creditors quick access to your money. If a judgment creditor gets a judgment against you, they can give proof of it to your bank and start garnishing your bank account. Your bank then freezes the money in your account. This is called a levy.
Your bank is required to send the money in your account to your creditors to satisfy your debt, though some funds are exempt from a bank levy. For example, some types of federal benefits, like Social Security benefits, are exempt or safe from a levy. To protect yourself, it’s best not to commingle or mix money from federal benefits with other money you may have that isn’t exempt. This way, if your bank account is levied, you can claim an exemption and prevent a garnishment.
Seizures of Real or Personal Property
If you owe a judgment, a creditor can get court permission (usually through a writ of execution) to seize your home, real estate, land, or personal property. With permission, they can get a sheriff or similar law enforcement officer to sell your property and use the proceeds from any sale to pay off your debt.
Any creditor with a lien on any real property will get paid before a judgment creditor gets anything from a seizure. So if your car is seized and sold, the car loan company will be paid off before the judgment creditor gets paid.
A lien is a legal right that a creditor has against property used as collateral to back up a debt. Some liens are created through a sale agreement like a car loan and others are created with a legal judgment through the court. To guarantee repayment of a loan or judgment, the creditor uses the lien to seize assets it has a lien on.
The judgment creditor can record its judgment in the county where it got the judgment. With the judgment recorded, the property can only be sold if the judgment lien is paid off. So, for example, if you sell your house, the judgment creditor with a lien will be paid before you get any sales proceeds.
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State Law Exemptions
State exemption laws protect some types of property from creditors. If a creditor has a judgment against you, it can attempt to enforce it by taking your cash or by taking control and selling your property. But, there’s a good chance you’ll be able to keep some of your property by using exemptions.
State Homestead Exemptions
You have rights and protections under state law to keep a judgment creditor from seizing your property. This includes state homestead exemptions, which protect certain assets from being seized by a creditor if a spouse dies or someone files bankruptcy. Florida and Texas have unlimited homestead exemptions, meaning there’s no dollar limit on your property’s value. But Alabama and Kentucky have small homestead exemptions. Both states limit the dollar amount you can claim as an exemption. It all depends on where you live.
State Wage Garnishment Exemptions
Each state has its own wage garnishment exemptions protecting wages, depending on a person’s situation. For example, a Florida debtor’s wages can’t be garnished for someone that’s the head of household and provides more than half of the financial support for someone. If you’re unsure about what wage garnishment exemptions apply in your state, consider getting qualified legal advice.
State Exemptions Covering Personal Property
There are also state exemptions available to judgment debtors to protect the debtor’s bank accounts and paid-off cars. Limits vary by state. For example, if you’re an Arizona resident, you have a $5,000 car exemption and a $150 bank account exemption. This means that if you have a car valued at $5,000 you can keep your car safe from judgment creditors. As another example, Illinois residents have lower state exemptions. If you live in Illinois, you only have a $1,200 car exemption but you can take advantage of a higher $2,000 bank account exemption.
Extra state exemptions are called wildcard exemptions where any real or personal property up to a certain limit is protected. For example, Virginia residents can add a $5,000 wildcard exemption (or $10,000 if you're over 65 years old) to standard exemptions.
How Will a Judgment Creditor Know Where to Garnish My Check or Seize My Bank Account?
Judgment creditors have ways to find judgment debtors’ property. These methods help creditors locate a debtor’s assets to pay a judgment with a computer search called skip tracing. They can also use the following:
Written Interrogatories: Interrogatories are written questions you’re required to answer under oath after a judgment is entered. Judgment creditors use these to find out where you work, where you bank, and what property you own.
Court Hearings: A creditor can also request a court hearing where the judge asks you about your assets. You’ll be required to respond to the judge under oath that the answers you give are true.
If you get a notice about a court date and don’t show up to court to answer asset questions, you could be arrested. Show up to avoid serious consequences. If you can’t go to court, call the court clerk and ask for a continuance.
There are different ways you can reduce the negative impact a judgment can have on you. If you can’t afford to pay a judgment, act fast. Ignoring a judgment will only make your situation worse. You can voluntarily make arrangements to settle and pay debts after judgment. If you don’t, you could lose your money and other real property through wage garnishment, liens, and levies.
You may also be able to file bankruptcy to deal with judgments. If you’re considering bankruptcy, see if you can file bankruptcy for free or with the help of a qualified Chapter 7 or Chapter 13 bankruptcy attorney.