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Who Is Judgment Proof?
A judgment proof individual is anyone's who assets are fully exempt from collection. First, lets discuss the additional collection rights debt collectors earn after suing you and getting a judgment:
- Can garnish your wages
- Can garnish your bank accounts
- Can place a lien against your real estate
- Can place a lien against your personal property, such as an automobile
Keep in mind that collection agencies working for the federal government have these rights without the benefit of a judgment. Commercial collection agencies whose responsibility it is to collect old hosptial debts, library fines, credit card debts, etc, must have a judgment against you before utilizing any form of involuntary debt collection.
Most people that hold judgment proof status in one area aren't safe in another. For example, if you are unemployed, a collection agency cannot garnish your wages because you don't have any. If you have a car, however, the company can place a lien against it and subsequently seize the vehicle.
Judgment Exemptions That Protect You
You don't have to lack any assets at all to be considered judgment proof for legal purposes. Some forms of income are protected under federal law. Thus, if you survive primarily on one or a combination of the following income sources, collection agencies cannot force you to turn over the funds either via garnishment or a bank levy.
- Social Security
- Child support
- Veterans' benefits
- Unemployment payments
- Military annuities
- Financial aid for college
- Workers' compensation
- FEMA benefits
- Retirement pensions
Remember, when it comes to bank account garnishment, you must claim your exemptions for them to be effective. Otherwise, the collection agency will try to seize them and the bank will willingly turn them over.
Make Yourself Judgment Proof
While defending yourself in court against a collection agency lawsuit is always the smartest course of action, there are things you can do to reduce the odds of the collection agency being able to enforce a judgment against you and, in some cases, helps prevent a judgment altogether.
Your wages are the most difficult piece of the puzzle. If you live on standard employment and don't work "under the table" or live primarily on government or retirement benefits, your wages are usually subject to garnishment. There isn't too much you can do about this unless you want to change employers frequently until the judgment expires. It typically takes debt collectors six months or so to locate you and file a new garnishment order. Some don't even bother. Thus, whether or not you are fully exempt from wage garnishment is more a matter of sheer luck than careful planning. Unless, of course, you're willing to relocate.
Four U.S. states do not allow wage garnishment by commercial creditors – including collection agencies. Those states are South Carolina, North Carolina, Pennsylvania and Texas.
If you live in the northern U.S., purchasing property in Canada, filing for permanent residency (roughly $1500 last I checked) and getting a job across the border can prevent a collection agency from garnishing your wages.
Protecting Bank Accounts From Judgments
Your bank accounts are safe if they contain exempt funds and you take care to claim those funds as exempt with your bank as soon as the collection agency tries to place a post-judgment freeze on your checking or savings accounts. Otherwise, a bit of creativity may be in order.
Many banks overseas offer foreign bank accounts in U.S. dollars. Lloyds of London is just one example. You can use the bank for all of your checking and savings needs with the security of knowing that a collection agency can't touch your money.
Let me be straight here: If you owe the IRS, putting your money into an offshore checking account doesn't help you. The IRS has options other collectors don't and doesn't even have to sue you before taking away everything you own. Collection agencies, however, would have to "domesticate" their judgments to collect from an offshore account. Few collection agencies would bother going through this trouble – and that's if they even find out about your offshore account. They have enough trouble tracking down bank accounts in the U.S.
Keep in mind, I'm not telling you how to hide your bank accounts from collection agencies since that could potentially get me in trouble. I'm merely stating a method by which some people do just that.
Collection Agency Liens Against Real Estate
If you own your home home, you'r at risk of liens after a judgment. Hiding assets after a judgment is illegal in most states, but taking care to place your assets in safer hands prior to the lawsuit isn't. If your house or car is paid for, a collection agency is more likely to foreclose on its lien. If you carry a mortgage or auto loan, the collection agency would have to pay off the superior lien before it could seize the asset. Thus, its generally safer to keep a mortgage against your property.
Renters benefit greatly here. Debt collectors cannot place liens against rental property if the judgment they hold is against the renter rather than the property owner. Yet another aspect of the lien process to consider is that the lien appears in the county you live in. The collection agency may very well overlook property you own in other counties or states.