People sometimes use the phrase “judgment proof” when talking about trying to collect from a debtor. You might think that if someone is judgment proof, it means no creditor can get a judgment against them. That’s not correct.
What Does “Judgment Proof” Mean?
To be judgment proof means is that even though a creditor can get a judgment, the creditor has no way to collect the judgment. Sometimes that’s because the debtor can’t be found. Usually that’s because the debtor has only exempt assets that the creditor can’t reach.
All states have some form of exemptions from collection. Exemptions serve to protect the exempt property from creditors’ claims. They exist because everyone is entitled to keep the bare necessities of life. Things that are exempt typically include household goods and furnishings; a car, up to a certain value; retirement accounts, including Social Security; and clothing, among other things. If the debtor’s income is from exempt sources, such as retirement income (IRAs, 401(k)s, pensions or the like), or is Social Security or disability, the income is exempt and can’t be garnished. If all the debtor’s personal property (cars, household furnishings, etc.) consists of exempt property, it can’t be attached or taken by a creditor. In such a case, the debtor is said to be judgment proof.
Remaining judgment proof.
Not all judgment proof debtors remain judgment proof. If a debtor doesn’t have equity in her home now, in several years, with the combination of paying down a mortgage and the value increasing, there might be equity. If a debtor who was living on unemployment compensation (which can’t be garnished) gets a job, that income is non-exempt and can be garnished. If the debtor receives an inheritance, that is not exempt. Judgments are valid for eight years and can be renewed. Just because a debtor is judgment proof doesn’t mean she’ll stay judgment proof indefinitely.
Being Judgment Proof Doesn’t Protect from Creditor Harassment.
Creditors have different ways to try to collect debts. Being judgment proof is no protection against a creditor’s trying to collect. The creditor can do everything up to and including getting a judgment for the debt. And creditors can try to enforce judgments for as long as the judgment is valid, which is eight years in Utah.
Judgments Stay on Credit Reports for Years.
Judgments stay on credit reports for 8 years, after which time they become stale, unless they are renewed. A bankruptcy stays on credit reports for 10 years, but there’s a big difference. A bankruptcy creates a bright line after which all those debts go away. Judgments, on the other hand, count against you as long as they are valid. Five years after filing bankruptcy, the bankruptcy is ancient history. Five years after a judgment is entered, that judgment is alive and well and subjecting you to collection action. That’s why bankruptcy is called a “fresh start:” you get to start over unencumbered by old debts.
If You’re Judgment Proof, What Should You Do?
If you’re truly judgment proof, creditors can’t harm you in any meaningful way. There are no wages to garnish; no property to attach; no house to foreclose on. If you can live with the occasional harassment of showing up on a supp order, you might be able to ride things out. But remember, those judgments are holding you back from getting a good job, a house, a car, and otherwise moving on with your life.