When Is a Debtor Considered to Be Judgment Proof?

 Posted on August 31, 2022 in Debt Collection

Creditors need to be able to collect debts that are owed to them, and there are a number of options available in situations where debtors fail to make payments as required. However, there may be some situations where a debtor may be judgment proof or collection proof, which will affect a creditor's ability to recover the amount owed. By understanding the criteria that must be met for a debtor to be considered judgment proof, creditors can determine their best options for collecting debts.

Factors That Determine Whether a Debtor Is Judgment Proof

The income a debtor earns and the assets they own will determine whether they are judgment-proof. Generally, if a person does not earn enough to make payments toward their debts while also meeting their ongoing needs, and they do not have any non-exempt assets that may be seized and liquidated, they will be collection proof.

Wage garnishment limits may be considered when determining whether a debtor has disposable income that may be used to pay debts. Federal law states that the maximum amount that can be garnished is 25 percent of a person's or the amount they earn that is above 30 times the federal minimum wage. If a person earns a weekly after-tax income of $217.50 or less, none of their wages may be garnished. Also, only certain types of income are eligible for garnishment, and income earned through Social Security, unemployment benefits, other public benefits, or child support cannot be garnished.

If the income a debtor earns is below the level that will allow for wage garnishment, the assets they own may be considered. Certain types of assets are exempt from liquidation if a debtor files for bankruptcy. In Illinois, the bankruptcy exemptions include $15,000 of equity in a home (or $30,000 for a married couple), a motor vehicle worth up to $2,400, tools of a person's trade worth up to $1,500, tax-exempt retirement benefits, and other personal property valued at up to $4,000. A debtor will be considered to be judgment-proof if they do not own any non-exempt assets.

In situations where a debtor is judgment-proof, creditors may still be able to move forward with the debt collection process, either by making payment plans or other arrangements with a debtor or by taking legal action. A creditor may pursue a legal judgment against a debtor, and while a judgment-proof debtor will not be required to pay debts, if their financial situation changes in the future, the creditor may then resume collection actions and seek to garnish their wages or collect debts through other means.

Contact Our Cook County Debt Collection Lawyers

If you are a creditor who is owed money by a debtor, our Chicago creditors' rights attorneys can help you understand your options for collecting the debt. We can review your case and determine whether the debtor is judgment-proof and, if so, what your best course of action may be. Contact us at 312-704-0771 to schedule a consultation.

Sources:

https://www.investopedia.com/terms/j/judgment-proof.asp

https://upsolve.org/learn/mean-judgment-proof/

https://www.dol.gov/agencies/whd/fact-sheets/30-cppa