Imagine a business owner speaking with her attorney about the possibility of suing a customer for nonpayment. After looking into the issue, the attorney comes back with advice the business owner doesn’t want to hear – write off the debt and move on. Why would an attorney recommend such a thing, especially if the customer is judgment-proof?
We are by no means legal experts here at Judgment Collectors. Attorneys might recommend against civil litigation for any number of reasons. One of those reasons is something we have personal experience with. Attorneys might recommend against civil litigation if they believe the debtor in question could be judgment-proof.
Labelling a debtor as judgment proof is essentially saying that circumstances will make collecting nearly impossible. For whatever reason, the likelihood of success is near zero. Interestingly, there are three primary circumstances that can make a person judgment-proof.
1. Limited Income
The first circumstance is limited income. Imagine a judgment debtor working a minimum-wage job. He has just enough money to put food on the table and pay his car loan. There is nothing left over to pay the award ordered by the court. At least for the time being, the money just isn’t there.
Limited income potentially eliminates two of the most common methods for collecting outstanding judgments:
- Payment Plans – Entering a payment plan is the least painful way to take care of a monetary award. Even if it takes years, making monthly payments is still a viable way to go.
- Garnishment – In states that allow garnishment, judgment creditors can take a certain amount of a debtor’s disposable income for debt payment. But if a debtor’s income is already limited, garnishment may be off the table.
Insufficient income makes collection efforts difficult. Yet there are still two additional circumstances to look at. They also play a role.
2. No Valuable Assets
Though there are exceptions to the rule, most states allow judgment creditors to go after certain types of personal assets. Creditors can file liens against business properties and homes. In some states, they can even apply for writs of seizure. These are court orders giving the local sheriff authority to seize and sell a piece of property for repayment of a debt.
A judgment creditor might start looking at personal assets if a debtor’s current income is insufficient. But what if a debtor has no valuable assets? Or what if a debtor’s only assets are protected under state law as exempt? It happens all the time.
With limited income and no valuable assets, the options for collecting are few. However, few does not mean there are none at all. That takes us to the third and final circumstance.
3. Few Prospects for the Future
On the day a judgment comes down, the debtor could have limited income and no valuable assets. But in most states, judgment creditors have 7-10 years to collect. Some states also allow renewing judgments just before they expire. What does all this mean? Circumstances could change in the future. A debtor could have income and assets sufficient enough to pay at some point down the road.
On the other hand, if a debtor appears to have few prospects for the future, collection efforts could be in vain. Having limited income, no valuable assets, and no reason to believe that anything about a debtor’s circumstances will change leaves a creditor with very few options but to write off the debt and walk away.
Before you give up though, contact us here at Judgment Collectors. If your debtor is not judgment-proof, we might be able to help with collection.