There are times when we tell potential clients that they may not need to file bankruptcy. If you don’t have any assets or income that a creditor can claim, you are what we call “judgement proof,” and may not need to file bankruptcy. However, just because you are judgment proof does not mean you can’t file bankruptcy or shouldn’t. Sometimes it is money well spent to stop creditor collection efforts and a way to plan for your future if you expect your financial situation to change.
When you default on a debt and do not respond to a creditor’s collection effort, they may choose to take you to court. The creditor may receive a judgment against you for the amount you owe and can receive a court order to repossess your property, garnish your bank account or wages, or seize and sell your property.
The good news is that creditors can only garnish certain kinds of income and much of your property is likely protected by state law. State law exemptions protect property from creditors even if you never file a bankruptcy case. Exempt property cannot be sold by a creditor to pay a debt even if they sue you and win in court.
“Judgement proof” is legal slang describing somebody that has little to no seizable income and only has assets that are protected by exemptions. Often the elderly or those who are retired are considered judgment proof. This is because the types of income they receive, such as social security, is protected and the assets they own fit into one of the state exemptions.
While a creditor may never be able to actually collect from you, being judgment proof does not stop creditors from calling you or requesting your appearance in court. Being judgment proof isn’t always a permanent status. If your circumstances change such as receiving an inheritance or becoming regularly employed, those funds may be available to your creditors. However, if you can live with the hassle from creditors and do not think your financial situation will change, then you may be able to get by without filing bankruptcy.
Judgement Proof Income
After the creditor receives a judgment against you, the next action is to seek a garnishment of your income to satisfy the judgment amount. The court will issue an order and allow the creditor to take money from your paycheck or bank account to satisfy the debt you owe. If your income is from a protected source, then the creditor cannot intercept it before it hits your bank account. Examples of exempt income sources that cannot be garnished are:
- Social Security Income
- Veterans Benefits
- Child Support or Alimony
- Unemployment Benefits
- Workers Compensation
- Public Assistance benefits
It is important that you do not mix these types of income with non-exempt income (such as a regular paycheck, or a spouse’s paycheck) in the same bank account, otherwise, the funds can lose their exempt status and be seized by a creditor.
Judgement Proof Property
Some personal and real property is protected from creditors in Kansas. Here is a partial list of property that is safe from unsecured creditors (e.g., Creditors of credit card or medical debts). This means your credit card company cannot force you to sell your home to pay your debt. Creditors that have a secured interest in your home or vehicle, can still foreclose on your home or repossess your vehicle if there is a default.
- Your Homestead up to one acre within city limits or 160 acres out of city limits up to an unlimited amount
- A Vehicle that is your daily driver up to $20,000 in value
- Jewelry up to $1,000 in total value
- Household goods and furnishings an unlimited amount
- Retirement accounts
If you are facing actions by creditors and want to discuss your options, reach out to one of our bankruptcy attorneys for a free consultation. We are happy to talk about bankruptcy and non-bankruptcy options that may be right for you.