Imagine a company taking a customer to court over an unpaid bill. The company wins a judgment, which is essentially a court order recognizing the debt and the company’s legal right to collect it. Collection efforts may be stalled by the fact that the debtor is considered judgment proof. Guess what? Being judgment proof is not necessarily a permanent situation.
Judgment Collectors, a specialized judgment collection agency out of Salt Lake City, UT, explains that being judgment proof is essentially having little income, no valuable assets, and few prospects for the future. A generally judgment proof debtor is hard enough to collect from that creditors and agencies just don’t try.
Once again, however, being judgment proof can be a temporary situation. It is usually not permanent unless the debtor goes out of his way to make it so. That’s why it pays for judgment creditors, their attorneys, and their collection agencies to pay close attention to what debtors do.
Protection Against Garnishment
Given that one of the characteristics of being judgment proof is having limited income, it might be all but impossible for a creditor to garnish a debtor’s wages and/or bank accounts. In terms of wage garnishment, most states only allow creditors to garnish a certain percentage of a debtor’s disposable income.
What if a low income individual has such a small amount of disposable income that garnishing it would be a waste of time? A creditor could be looking at a judgment proof situation. On top of that, the same debtor is unlikely to have excess funds getting unprotected in a bank account that could be garnished. That is probably out of the question, too.
Circumstances Can Always Change
The thing is that a judgment proof debtor’s circumstances can always change. Maybe the debtor gets a new job with a higher salary. He doesn’t report the new job to the creditor for obvious reasons. But if the creditor or its representatives are paying attention, they will eventually catch on. Wage garnishment might be back on the table.
A judgment proof debtor landing a higher paying job exemplifies why Judgment Collectors recommends routinely checking in with debtors even if they say they cannot pay. A careless debtor who thinks the creditor has given up might let slip that he has a new job.
The Same Goes for Assets
Judgment proof debtors do not have any valuable assets that could be sold for payment. But again, that condition might only be temporary. A debtor may acquire assets later on under the false assumption that their creditor has given up all hope of being paid.
Public records are a handy tool for keeping track of this sort of thing. Just as an example, counties publish real estate transactions as a matter of public record. These days, nearly all those records are available online. A smart collection agency routinely reviews local property records in search of newly acquired properties that could be used as leverage to collect.
A Judgment Creditor Shouldn’t Give Up
The main lesson here is that judgment creditors should never give up even when they believe they are dealing with judgment proof debtors. A debtor may be legitimately judgment proof today. That does not mean he will still be judgment proof six months from now, a year from now, or even five years down the road.
Life changes. Circumstances change with it. The smart creditor will quietly pay attention in the background waiting for any such changes that could alter a judgment proof debtor’s status. Once a debtor is no longer judgment proof, all bets are off.