What does it mean to be "Judgment Proof" ?
If you can’t pay on a debt, a creditor (person or company you owe) might sue you to collect it. However, you can't be put in jail for failing to pay your creditors (though child support is an exception). If you are sued and can’t pay, the creditor can get a judgment in court against you for the money you owe, plus interest. Being “judgment proof” means that your property and income can’t be seized by creditors, because it is “exempt” by law from the creditor’s claims. If your income and property is exempt, then you have nothing the creditors can take from you.
The law protects certain kinds of income from the claims of creditors. If your income is from a protected source, it is exempt from claims of creditors. Examples of exempt income are:
- Social Security or Social Security Disability Income
- Veteran’s benefits
- Public assistance (welfare) benefits
- Retirement benefits
- Worker’s Compensation and vocational rehabilitation benefits
- Unemployment benefits
- Court ordered child support and spousal support
WARNING: Do not mix exempt income in a bank account with other money (for example, a spouse’s earnings), or it is no longer protected. Keep this money separate from any other income or earnings.
Exempt property includes most of what you need to live:
- Household items, up to $30,000 for a single person and $60,000 for a family.
- Vehicles, one for each licensed driver in the house.
- Your homestead, up to 10 acres urban property (single or family) and up to 100 acres rural (single) and 200 acres (family). NOTE: If you are behind on your mortgage, property taxes, or home equity payments, your homestead can be foreclosed. Don’t get a home equity loan to pay off credit card debts or medical bills -if you default on the equity loan, you could lose your home.
- Other exempt property, including two firearms, tools of your trade, sporting equipment, bicycles, 2 horses, 12 head of cattle and other items.