In our business, there is a type of debtor we refer to as being ‘judgment-proof‘. This is a debtor with no realistic means to pay and no reasonable prospects for the future. Judgment-proof debtors cannot be collected from, at least in the short term. But things could change in the long term.
The question is this: what conditions make a debtor judgment-proof? A lot of things could contribute to making a judgment debtor difficult to collect from. But when push comes to shove, there are three conditions that top the list. If a judgment debtor meets all three, good luck collecting from them until something changes.
Condition #1: Little or No Earned Income
Earned income is what most judgment creditors rely on when employing garnishment. Earned income includes things like wages, commissions, and bonuses. Someone who is unemployed has no earned income. Meanwhile, a debtor with just a part-time job has earned income, but it’s very little.
A lack of earned income takes garnishment off the table. This matters to judgment creditors facing a situation in which the debtor has no valuable assets. If garnishment is all that is left, little or no earned income becomes a problem for the creditor. Yet even with earned income, garnishment is never guaranteed. That takes us to the second condition.
Condition #2: Only Protected Income
The next condition involves a debtor with only protected income. There are two ways to look at this. First, most states only allow garnishing a certain portion of a judgment debtor’s disposable income. So even with a regular job and paycheck, there may not be enough disposable income to make garnishment worthwhile.
Second, certain types of income are exempt from garnishment. They include Social Security income, disability payments, unemployment benefits, and child support payments. If a judgment debtor’s income is made up primarily of these protected sources, there is nothing to garnish.
Condition #3: Minimal or No Assets
When judgment debtors refuse to agree to installment plans and do not have enough non-exempt income to make garnishment worthwhile, judgment creditors may look to assets they can seize and sell. But what if the debtor has no such assets? Assets that are typically targeted include:
- Real estate (except a primary residence).
- Investment property.
- Boats, RVs, etc.
- Business assets.
In most states, a debtor’s primary residence is protected completely or protected at the value of the state’s homestead exemption. One way or the other, a primary residence is usually a poor target for collecting an outstanding judgment.
Things Can Always Change
As an agency with years of experience collecting outstanding judgments, we can tell you that facing a judgment-proof debtor is challenging. But challenging does not necessarily equal never being able to collect. We have seen cases in which debtors were judgment-proof at the time their judgments were handed down against them, but then able to pay years later.
Imagine you live in a state in which the statute of limitations on money judgments is 10 years. Today, the debtor is very much judgment-proof. Collecting from him would be like trying to get blood from a stone. But who knows? Five years down the road he may be in line for a sizable inheritance. He might find a better-paying job or get a promotion.Judgment-proof debtors create problems for debt collection. That’s why it is so important to let professionals handle judgment collection if they can. We are professionals here at Judgment Collectors. If you have an outstanding judgment that you’ve so far been unsuccessful collecting, we might be able to collect on your behalf.