What Does It Mean When a Debtor is “Judgment Proof”?

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If you have ever tried to collect an outstanding debt or an unpaid invoice, you have probably heard the term “judgment proof.” No, this doesn’t mean you will never get paid for the goods or services you’ve already provided. The term, “judgment proof” is actually a bit of a misnomer — it certainly doesn’t mean you can’t take a judgment against a particular debtor. It’s actually a better indicator of how difficult a debt will be to collect.

Most often, people use the term “judgment proof” to mean a person who has limited assets: no assets in a bank account, no real estate, no personal property of significant value. It also means that they are either not working, are working in a low paying job, or already have substantial encumbrances on their income (for example, child support).

Can I Still Collect a Debt from a “Judgment Proof” Debtor?

Like many things in life, this question does not have a straightforward answer. The most truthful answer is: it depends. In general, even if the person does not have many assets, you still have some legal recourse.

As a creditor, you can still file a lawsuit for the debt in the appropriate court. If the debtor either does not show up for the hearing, admits the debt, or fails to successfully contest the debt at trial, the court will award a judgment against the debtor.

If the person who owes you or your business money has filed for bankruptcy, you may not be able to obtain a judgment, but an attorney can assist you in filing proof of claim with the bankruptcy court. Depending on the bankruptcy proceedings, you may be able to collect some or all of your debt.

How Can I Pursue the Debt After I Obtain a Judgment?

Once a judgment has been obtained, the creditor and its attorney can utilize all tools available to collect the debt. Which collection efforts work in a given situation, however, will depend on the debtor’s job, bank accounts, location, and other assets. For example, if you or your attorney are able to find out where the debtor works, you may be able to file to garnish their wages. If they have funds in their bank account, these too can be garnished. An attorney can also help you place a lien against any real estate or personal property the debtor may own.

However, unemployment benefits, social security, other public benefits are exempt from garnishment, and a debtor’s wages or bank account cannot be garnished if there are other encumbrances on the debtor’s income, such as child support.

If a debtor truly has no income and no property, they are sometimes called “judgment proof.” Some attorneys, especially if they aren’t experienced in collection law, may recommend giving up at this point. In some cases, like if the debtor has moved out of state or is incarcerated, it might make sense to put the collection effort on hold. However, it doesn’t always mean the end of the road for your claim.  

A judgment proof debtor does not have to mean you are out of luck. An attorney can still bring the debtor into court to answer questions about their assets, which can take time and resources. Often, a debtor will decide to settle a case just to avoid the court date. People’s circumstances also can change. Judgments are valid ten years in VA and can be renewed after that time in up. A judgment can seriously damage a credit score, so debtors will often get back into contact when they are able to pay the outstanding debt in order to have the judgment satisfied. If a debtor wants to qualify to rent a home or purchase real estate in the future, a potential landlord or mortgage company may require the judgment be satisfied before going forward.

Contact an Experienced Collection Attorney to Help

If you are having trouble collecting a debt for your business or individually, and you think the debtor might be “judgment proof,” give one of our experienced Leesburg attorneys a call at 703-771-9740. At Wakefield Law, PLLC, we have the knowledge, expertise, and tenacity to pursue even the toughest-to-collect debts.