Judgment Proof:
You may be considered
"Judgment Proof" during periods of unemployment or while drawing disability pay
or disability retired pay. Also, if you have no assets such as home, car, land,
and other big-ticket items. In other words, you have no money and can prove it!
Never ignore a lawsuit or court appearance notice just
because you are broke or have no assets! If a debt collector or
creditor is trying to sue and you believe that you are judgment proof, you must
respond to the lawsuit as such. Failure to appear and show the judge why you
are judgment proof opens the door for the judge to grant the collector a
Default Judgements. Even though they
cannot collect anything from you now, they can wait many years and try again.
Also, the judgment will show up on your credit report.
Special Note: Judgment-proof is the commonly used term
but a more accurate term would be "execution-proof"! Although creditors and
debt collectors win lawsuits, they still have to collect thus, if you are
penniless you are insulated not from judgment but from execution (collection of
the debt - at least temporarily). If you lose your "judgment proof" status due
to new employment, the creditor or collector can seek a judgment and ask for a
garnishment of wages up to 25% of your
disposable income (in some states it's
less). Once you're employed again, it's better to negotiate a reduced payoff
rather than risk a court-ordered judgment. The difference is your credit report
will show "debt settled" instead of the more negative "judgment"!
Disability Payments In most states, state paid
disability and private disability insurance payments are exempt from
garnishment. The exceptions are generally for current and back child support
payments and taxes. Most retired disability is exempt. The best thing to do is
call your state attorney general's consumer protection division and ask.
Attorney General web sites
Social Security and Garnishment:
Generally, Social Security benefits are exempt from execution,
levy, attachment, garnishment, or other legal process, or from the operation of
any bankruptcy or insolvency law. The following benefits are exceptions and
subject to garnishment:
(1) to the authority of the Secretary of the Treasury to make
levies for the collection of delinquent Federal taxes and under certain
circumstances delinquent child support payments; and
(2) to garnishment or similar legal process brought by an
individual to enforce a child support or alimony obligation. Section 207 of the
Social Security Act provides: "The right of any person to any future payment
under this title shall not be transferable or assignable, at law or in equity,
and none of the moneys paid or payable or rights existing under this title
shall be subject to execution, levy, attachment, garnishment, or other legal
process, or to the operation of any bankruptcy or insolvency law."
However, section 6331 of the Internal Revenue Code of 1954 (26
U.S.C. 6331) which was enacted into law on August 16, 1954, after the enactment
of section 207, gives the Secretary of the Treasury the right to levy or seize
for collection of delinquent Federal taxes, property, rights to property,
whether real or personal, tangible, or intangible and the right to make
successive levies and seizures until the amount due, together with all
expenses, is fully paid. References: SSR 79-4: SECTIONS
207, 452(b), 459 and 462(f) (42 U.S.C. 407, 652(b), 659 and 662(f)) LEVY AND
GARNISHMENT OF BENEFITS 20 CFR 404.970 SSR 79-4
See
the code here
Special Note: According to the Social Security
Administration's (SSA) website, the SSA recently changed it's rules to allow
the collection of overdue Program and Administrative Debts using Administrative
Wage Garnishment! The regulations dealing with the collection of program
overpayment debts that arise under titles II and XVI of the Social Security Act
(the Act) and administrative debts owed to the SSA have been modified.
Specifically, the change establishes new regulations on the use of
administrative wage garnishment (AWG) to collect such debts when they are past
due.
AWG is a process whereby the SSA orders the debtor's employer
to withhold and pay the SSA up to 15 percent of the debtor's disposable pay
every payday until the debt is repaid. The employer is required by law to
comply with the AWG order. These new rules are effective January 22, 2004.
(References: SOCIAL SECURITY ADMINISTRATION 20 CFR Parts
404, 416 and 422 RIN 0960-AE92 Federal Old-Age, Survivors, and Disability
Insurance and Supplemental Security Income