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 from you, but if you are penniless then you are at least temporarily insulated not from judgment but from execution of the judgment (the collection of the debt)
You may be considered “Judgment Proof” during periods of unemployment or while drawing disability pay or disability retired pay or 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 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 judgment”. Even though they cannot collect anything from you now, with a judgment against you, collectors can wait many years while periodically trying to collect the debt.
Judgments also show up on your credit report as a huge negative! If you lose your “judgment proof” status due to new employment, be advised that whoever owns the judgment can seek wage or bank account garnishment.
So, unless the debt has expired, once you’re employed again, it’s better to negotiate a reduced payoff rather than risk a court-ordered judgment.
Your credit report will show “debt settled” instead of the more negative “judgment”!