Written by Kelly M. Resnick, Resnick Law Offices, Serving the Bay Area
Bankruptcy is a very effective tool to eliminate debt. However, there are times when bankruptcy can be avoided by using a different strategy. One of these strategies is determining whether or not you are “judgment proof.”
If your sole source of income is derived from Social Security, welfare, unemployment, and/or disability insurance and all of your property is exempt (i.e. property you can keep during and after bankruptcy), you are considered judgment proof. Creditors, even those armed with a court judgment, cannot collect public benefits to satisfy a debt. Creditors, however, can still sue you and obtain a judgment against you, and being judgment proof is not a defense to a lawsuit. Judgment proof refers to the inability of a judgment holder to obtain satisfaction of that judgment.
You should be aware though that your judgment proof status can change. This means that if you begin receiving other income such as wages, or acquire unexempt assets, then you lose your “judgment proof” status and creditors can begin collecting against you.
Sometimes, a letter to the creditor explaining your status is all you need to stop the harassment. But, even if you are judgment proof, you may still want to file bankruptcy to stop creditor harassment or to prevent a judgment being entered against you, especially if you think you may lose this status in the future. Before making the decision to ignore creditor collection efforts and lawsuits, make sure you verify your status with an experienced attorney.