If you are hit with a judgment for debt, there is a chance
that none of your wages or belongings are eligible to be seized. You are "judgment proof" -- but that does not mean
you can sit back and do nothing.
People with modest income and little property may be
exempt from seizure of their wages and assets to satisfy a debt. Federal and
state protections set limits on what creditors may seize, even with a court
judgment, so that families are not made destitute. The protections are
even stronger for people with credit card debt than for those who owe taxes or child
Under the U.S. Consumer Credit Protection Act, a creditor is
limited to 25 percent of your disposable earnings above $290 a week, based on a
formula using the $7.25 federal minimum wage. If your disposable income is $217.50
a week or less, none of it may be seized. Disposable earnings are earnings after required
deductions such as taxes, Social Security, unemployment and state retirement
Twenty-seven states set higher protections than required
under the federal law. Four of them -- North Carolina, South Carolina, Pennsylvania
and Texas -- allow no wage income to be garnished for credit card debt.
State law also protects homes, used cars and household goods
from seizure, if the value of the items falls below certain thresholds. To find
the cutoff points in your state, check the appendix of the National Consumer
Law Center report, "No Fresh Start."
Also exempt from seizure are government benefits including
Social Security, unemployment and public assistance. Banks are supposed to
check your account for these deposits before acting on garnishment papers. Rex
Anderson, a consumer lawyer in Michigan, advises not to rely on this
protection. Instead, it is a good idea to send the creditor and district court
an affidavit swearing that you do not mix exempt and nonexempt funds in your
account, and back it up with copies of three recent account statements. As the
statements will be entered in the court record, black out the account number and
any other sensitive data or personally identifying information.
"Make sure you serve a copy on the creditor,"
Anderson said. "Then if they garnish the account, you have a case under
the FDCPA." The
Fair Debt Collection Practices Act
usually comes up in
connection with pre-judgment debt collection, but its protections from
harassment, deception and unfair tactics also apply to post-judgment collection
efforts. Violations of the law can result in a $1,000 penalty, paid to you from
the offending debt collector.
Amazingly enough, your belongings can be seized on the
spot. The cash in your wallet is not
exempt; the watch on your wrist is not necessarily exempt.
|-- Martin Wegbreit
Virginia Legal Aid Society, Richmond, Va.
It is important to know that, even if you're judgment proof, you may be made uncomfortable. Some creditors may do their best to maximize
your discomfort as leverage for payment, lawyers say. Having your employer told
to deduct sums from your pay can be embarrassing. And in most states, a
judgment creditor can summon you to answer questions about your income and
assets. In some jurisdictions, it's a good idea to remove your jewelry before
you go, and to empty your wallet.
"Amazingly enough, your belongings can be seized on the
spot," said Martin Wegbreit, director of litigation at the Central
Virginia Legal Aid Society in Richmond. "The cash in your wallet is not
exempt; the watch on your wrist is not necessarily exempt."
Police could bring you in
Failing to attend the proceeding, called a "debtor's
examination" or "debtor's interrogatories," is risky, as the
court may issue a warrant for police to bring you in for failing to appear. In
some jurisdictions creditors routinely use courts to collect this way. "In
many arrest warrant cases, judges will order that the bond which the defendant
paid be released to the judgment creditor," Maryland University law professor
Peter Holland wrote in his analysis of the debt buying system. However,
backlash against the practice has developed after articles in the Minneapolis
Star-Tribune and The New York Times examined what has been called a modern form of
"I don't think the sheriff is going to go out looking
for you," said Fred Schwinn, a consumer lawyer in San Jose, California. "But
if you get pulled over for something else, they could bring you in."
Another risk of toughing out a judgment is that
the creditor will resurface -- perhaps years later -- when you are flush.
"Debt collection attorneys at times frisk their old files for judgments to
try to collect," Schwinn said. Debt
buyers monitor credit reports for signs that your circumstances have improved,
such as a new address or a new job. "They're using analytics to determine
what cases they'll file." Given the lengthy life span of a debt judgment,
it is not safe to assume the debt will be forgotten.
Main story: Court judgments for debt: after the gavel