What Judgment Proof Means
You are 'judgment proof' (also called 'collection proof') when a creditor cannot collect from you even if they win a lawsuit and get a judgment. This happens when: your only income is from protected sources (SSDI, SSI, VA), you have no non-exempt assets, and you have no non-exempt bank account balances. A judgment against a judgment-proof person is like a check written on an empty account.
Common Judgment-Proof Situations
People living solely on SSI are almost always judgment proof -- SSI cannot be garnished by anyone and is needs-based (meaning minimal assets). People living on SSDI with no other income or significant assets are typically judgment proof. People living in states with generous homestead exemptions who own a modest home and car may be judgment proof even with some assets. See judgmentproof.org for more.
Should You Even File Bankruptcy?
If you are judgment proof, bankruptcy may be unnecessary. The debts exist on paper but are uncollectible. The main reasons to file anyway: (1) to stop harassing collection calls, (2) to eliminate the debts for peace of mind, (3) if your situation may change (future employment, inheritance), or (4) to stop credit damage from ongoing delinquency. Otherwise, simply being judgment proof may be enough.
Important Warnings
Judgment-proof status can change. If you return to work, receive an inheritance, or win a lawsuit, creditors with existing judgments can begin collecting. Judgments last 10-20 years (depending on state) and can be renewed. If your situation may change, consider filing bankruptcy proactively to eliminate debts while you can. Also, judgment-proof status does not prevent lawsuits or judgments -- it just means they cannot collect.
Frequently Asked Questions
Do I need to tell creditors I am judgment proof?
You are not required to, but doing so may stop collection efforts. A letter stating your only income is from exempt sources and you have no non-exempt assets may convince a collector to stop wasting their time.
Can a creditor still sue me if I am judgment proof?
Yes. Being judgment proof does not prevent lawsuits or judgments. It prevents collection on those judgments. A creditor might sue hoping your situation will change.
How long do judgments last?
10-20 years depending on the state, and they can often be renewed. This is why some judgment-proof people file bankruptcy anyway -- to permanently eliminate the debt rather than having an uncollectible judgment hanging over them.
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