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What does it mean to be "judgment proof?"

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In a Nutshell

Being "judgment proof" means that you do not have anything for a creditor to collect if they sue you and win. As you can imagine, this means that they are not likely to sue you. It does not mean that they can't sue you, just that they probably won't be able to collect if they do decide to take you to court.

Written by Attorney Jonathan Petts.  
Updated July 22, 2020

Being "judgment proof" means that you do not have anything for a creditor to collect if they sue you and win. As you can imagine, this means that they are not likely to sue you. It does not mean that they can't sue you, just that they probably won't be able to collect if they do decide to take you to court.

You are usually judgment proof when: 

  • All of your income is exempt. Federal law limits how much a creditor can "garnish" from your income to the lower of 25% of what's left of your check after mandatory deductions (taxes, medicaid, etc.) or the amount by which your income exceeds 30x the minimum wage. Creditors cannot take any income that you earn from these sources regardless of the amount:

    • Social Security benefits

    • Supplemental Security Income benefits

    • Public assistance

    • Unemployment

    • VA benefits

    • Child support

    • Federal employee and civil service retirement benefits

  • You don't have any cash or money in the bank. If you have money from sources other than those listed above in cash or in a bank account, a creditor who sues you may ask the court to "freeze" that money so that they can collect it. If you do not have any non-exempt cash or money in the bank, there is nothing for a creditor to freeze and seize.

  • You don't have any equity in real estate. Creditors are allowed to get a "lien" on your real estate in order to ensure that they are paid. If they attach a lien to your property, you will have to pay it off before you can sell or refinance that property. If you do not have any real estate equity, there is nothing for a creditor to attach a lien to. 

  • Your assets are all exempt. Each state (and the federal government) has a list of commonly-owned items that can be exempted from collection up to a certain dollar amount. If your assets are worth less than these amounts, the creditor will not be able to seize it if they win a judgment against you in court. 

If all of the above apply, then you are "judgment proof." However, it is important to remember that you may not always be. If a creditor garnishes your wages or gets a lien on your property while you are judgment proof, and if that garnishment or lien lasts until you are earning more or purchase property, that creditor can come after your assets at that future time.

This is precisely why filing bankruptcy when you are judgment proof can be so helpful. If you expect that your financial situation will improve in the future, there is a chance that the creditor who could not come after you now will do so when you are no longer judgment proof. If you choose to file bankruptcy instead, the debts you have now will be forgiven and no one will be able to come after you for them regardless of how much you make or own in the future.

On the flip-side, if you are judgment proof, have good credit that you need to keep, and do not expect your financial situation to change, filing bankruptcy may not be a good idea. The answer to whether or not you should file when you are judgment proof is highly personal, so be sure to take a good look at your assets, needs, and future plans before making a decision. 

Written By:

Attorney Jonathan Petts


Jonathan Petts has over 10 years of experience in bankruptcy and is co-founder and Board Chair of Upsolve. Attorney Petts has an LLM in Bankruptcy from St. John's University, clerked for two federal bankruptcy judges, and worked at two top New York City law firms specializing in... read more about Attorney Jonathan Petts

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