Collection or Judgment Proof?

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lawsuit lotto (Photo credit: Shira Golding)

A Personal Bankruptcy Story

This personal bankruptcy story was shared on a bankruptcy forum website today:

I was served a summons for credit card debt for about $14K two days ago. I called a bankruptcy attorney and explained my financial status (over 60, no income, name not on any property, $90 total in 3 separate checking account, a small brokerage account, a 1994 SUV in my name and we live on my spouse’s soc. security check). I also owe another $9K to 3 other credit cards (2 of which I recently had to quit paying). Last year I had $65K of cc debt I managed to get settled to around $23, but this one cc wouldn’t take the same settlement offer I could offer at the time. The attorney said I was basically judgment proof and he said I shouldn’t hire an attorney just to answer this summons.”

Technically, saying the debtor is judgment proof in the above example is a misnomer. The proper name used should have been collection proof.

The Difference between Collection Proof and Judgment Proof

A judgment is a legal term used when a plaintiff files and wins a civil lawsuit against a defendant. The plaintiff gets a judgment from a ruling court judge on the petition filed. With a judgment from a legal court of jurisdiction, a creditor can attach liens, seize some assets, and garnish wages when it is legal to do so.

A judgment may become meaningless when a bankruptcy is filed. Liens pass through a bankruptcy unscathed but debts can be discharged. Because a debtor has no assets to attach a lien does not mean he or she is judgment proof. A creditor can still get a judgment against you in a court of law, they just will not be able to collect anything from you. The only time you are completely judgment proof is when you as a defendant win a lawsuit against you.

The proper name for not being able to collect anything from a debtor for a debt owed is collection proof. If you live in a state that does not allow garnishment of wages for debts, like Texas for instance, and you have no assets to attach liens to, then you are considered collection proof.

Being collection proof, you can wait until the statute of limitations run out, and a creditor will not be able to legally collect the debt from you. A creditor can get you to restart the time limit on the statute of limitations if you acknowledge you owe the debt by making a payment on the debt after the limit time has passed.

Understanding the Implications of a Judgment

When you are collection proof, there is really no reason for you to file for bankruptcy protection because you have no assets to protect that a creditor with a judgment can get from you.

Understanding what the implications of a judgment can do to a person that is presumed to be collection proof can have complicated legal issues. Any time you are facing a lawsuit for collections that might force you into bankruptcy, it might be wise to solicit the help of an experienced bankruptcy attorney who can help you answer questions for your particular situation.

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