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Judgment Proof - What Does it Mean?

Judgment Proof
Daniel Cohen
UpdatedApr 5, 2024
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    4 min read
Key Takeaways:
  • Being judgment proof is when someone's low income and lack of assets make it hard for creditors to collect debts.
  • If sued, it's crucial to file an answer to the lawsuit, ideally with the assistance of a lawyer, to avoid a default judgment and potential loss of even exempt assets.
  • Individuals not judgment proof should explore debt resolution options such as negotiation, bankruptcy, or consolidation loans to manage or resolve their debts effectively.

Facing financial hardship can be overwhelming, but if you do not have much in the way of assets or income, you could be 'judgment proof.' This guide is here to help you navigate this protective financial status, and provide you with advice on how to handle creditor lawsuits with assurance. Take a moment to relax, and discover how this knowledge can help you when it comes to your finances.

What Does Judgment Proof Mean?

Let us start with what judgment proof is not. It is not a finding by a judge or a test a person passes or fails. You cannot declare yourself judgment proof, or prove it in court. Judgment proof is a phrase used to describe your present financial condition. You can be judgment proof today, and then tomorrow win the lottery or inherit money or assets that make you wealthy and no longer judgment proof. Because it is possible for your financial situation to change, judgment-proof is not considered a permanent condition. It is up to your creditor to decide if you’re judgment proof.

Creditors usually consider you judgment proof when:

  1. You do not work or if you work your take-home pay is low, and
  2. You have no equity in expensive assets, such as real estate, rare artwork, luxury cars, boats, and
  3. Your other sources of income (if any) are exempt from garnishment

Exempt sources of income include Social Security, VA, and unemployment benefits, private pensions, personal injury payments, and child support. Each state has its own list of other income exemptions that may apply to you. See the Collection Laws & Exemptions page to learn some of the exemptions for each state.

Sending a judgement proof letter

You can send creditors a judgment proof letter (PDF), but creditors are free to ignore such a letter and continue to pursue you aggressively. Your declaring yourself judgment proof will not stop a lawsuit make a collection agent stop calling you.

How Can Creditors Collect From Me?

If the original creditor or collection agent cannot get satisfaction in collecting from you using telephone calls or letters, it will resort to your state court system and file a lawsuit against you. If you receive notice of a lawsuit, consult with a lawyer to file an answer to the creditor’s complaint. You want to file an answer because many creditors know they do not have enough evidence to convince a judge the consumer owes the debt, and rely on the consumer not putting up a fight. If a consumer does not answer a complaint, the creditor wins by default. Therefore, many consumers find that when they oppose the lawsuit the creditor gives up and asks the court to dismiss the case.

When a creditor wins a lawsuit against the consumer, the court will award the creditor a judgment. The judgment gives the creditor the right to garnish your wages (in most states), levy your bank accounts, place a lien on your property, and demand the sheriff seize and auction your non-exempt personal property. See the resource Collections Advice to learn more about what lawyers calls remedies.

Quick tip - Check out your state's SOL: A judgment lasts for many years, and if left unresolved, will harm your ability to obtain a future loan. See this list of statutes of limits for judgments for each state.

What Should I Do If I Am Sued?

As mentioned, file an answer to the lawsuit. If you’re a quick study and can express yourself in written word clearly, you can respond to the lawsuit yourself. Your best bet, however, is to consult with a lawyer who has consumer law experience. He or she can write the answer using the language and legal arguments your state court will expect. If you can't afford a lawyer, call your county bar association and ask for the names of the organizations that provide no-cost legal services to people with low or no income in your area.

What if I am not judgment proof?

If you are not judgment proof, you must find a way to resolve the debt. Your options include:

1. Negotiate a settlement

A settlement is a deal you negotiate with your creditors to either establish a new payment schedule at a reduced interest rate, or a lump sum payment that’s significantly lower than the present balance. If your only other option is bankruptcy, your creditors may be willing to negotiate with you to ensure that they get something rather than nothing. See the article Debt Settlement Advice to learn more about this option and tips on how to negotiate with creditors.

2. File bankruptcy

Bankruptcy can wipe out your debts and give you a fresh financial start. Bankruptcy can be hard on your credit score, and make it impossible to qualify for a home loan for several years after a discharge. See the article Bankruptcy Questions & Answers to learn more about this option.

3. Find a loan

A debt consolidation loan may help you manage your monthly cash flow. Study What is the Best Kind of Debt Consolidation Loan? to understand your loan-related options and the costs of each.

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Bills Action Plan - Steps to take if you are not judgment proof

Judgment proof describes your present financial state. It is not a legal description. If you face a lawsuit and believe a judgment-creditor cannot collect a money judgment from you, take these four steps:

  1. Learn your state’s exemptions for:
    • Wage garnishment
    • Account levy
    • Liens
    • Seizing personal property
  2. Consult with a lawyer to learn if you are judgment proof today
  3. Answer the lawsuit even if you are judgment proof
  4. Know your debt resolution options so you can avoid a judgment

Struggling with debt?

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Auto loan debt was $1.607 trillion and credit card was $1.129 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Florida credit card delinquency rate was 4%, and the median credit card debt was $456.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.



DDavid, Feb, 2021

Please let me know if I can be sued for a charged off debt in connecticut by a law firm or collection agency.

JJosh, Aug, 2021

Hello David.

Thank you for reaching out regarding your inquiry. Please, do not take my answer to be legal advice as I am not an attorney. Only attorneys can offer legal advice.

You did not mention your residence and what kind of debts you earned. I recommend speaking with an attorney to get accurate information.

Generally, a creditor can sue you for debt that has not been satisfied. The Charge Off is a term to describe the accounting feature when a company removes an item from their ledgers. Basically, you may still be responsible for the debt. If the creditor pursues to secure the balance by litigation they may earn a judgment. A judgment or remedy is the right given to creditors from the court to collect the debt by means of garnishment, levy, or lien on your home.

Regards, Josh

AAnonymous, Jun, 2018

The article may intend to mean a "cease and desist letter" when it discusses a "judgment proof letter." A cease and desist letter mandates that a collector may no longer call or send letters to a debtor. That letter will stop phone and written communications from legitimate collectors. A cease and desist letter will "make a collection agent stop calling you." And sending demand letters as well. It is certainly true that if a person is judgment proof and owes the debt it is possible they can be sued. If the debt is legitimate there is probably no need to consult a lawyer and file an answer. What would be gained if the debt is owed? Social security, pensions, retirement income, disability income, VA benefits and $217.50 net per week is protected by federal law. The law determines if a person is judgment proof. Most seniors are judgment proof. If a person is judgment proof they don't need to worry about a judgment. It would be extraordinarily unusual for a judgment creditor to pursue non-exempt personal property. Persons who are judgment proof generally have minimal income. They do not need to negotiate settlements, file bankruptcy, attempt to make a loan or enter into debt management programs. The law protects their income and assets. They can use their income for their needs.

DDaniel Cohen, Jun, 2018

No, the article didn't intend to reference a cease and desist letter. If you view the PDF, you can read two sample letters that convey the message that is broader than a C&D letter. As you know, original creditors are not bound by a C&D request.

What is your source for the contention that most seniors are judgment proof? Even if true, wouldn't a sizable number not be so? 

It is never advisable to not answer a summons, in my view. Go and make your case and don't let a default judgment take place.

Even if judgment proof, a creditor may well sue. What if someone has equity in a home, but that equity is not exempt from collections? Wouldn't a creditor possibly sue to get a lien to encumber a sale of the property? There could be good reason for such a person to try and find a way to satisfy the debt, through a negotiated settlement at a reduced rate, in order to avoid the judgment and lien, or post-judgment to clear out the debt and satisfy the lien.

A person should do the proper research to find out what would result in a lawsuit and what alternatives exist, then choose the option that fits his or her view of the best decision. There is no one-size-fits all response, especially doing nothing, not consulting with an attorney, and assuming that one is judgment proof simply because one is a senior.

HHeidi, Jun, 2013
I am judgment proof where I live now, because of my state's homestead limit. If I move to another state, will I be judgment proof their because I was/am here?
BBill, Jun, 2013
Moving to a new state of residence can make you judgment proof, or make you subject to judgment. Being judgment proof is momentary and always subject to change.

State exemptions vary, so an asset that is protected from a judgment creditor in one state could be subject to collection in another.