If you've been browsing the internet searching for information about how to resolve your debt issues, then you have probably run across the term "judgment proof" at least a few times. But what does it mean exactly when someone says a debtor is judgment proof?
- A debtor who is judgment proof does not have any assets that can be collected by the creditor. For example, a person who does not own a house or a car that is clear of a loan might be considered judgment proof. Conversely, if a debtor had a home that was mortgage free, they would not be considered judgment proof because a creditor could win a lawsuit and place a lien against the property.
- Some debtors who have property may still be considered judgment proof if they do not have enough value in the property to satisfy a judgment a creditor might win. For example, a debtor with an upside down mortgage might still be considered judgment proof because even if a creditor placed a lien against the home, they would not receive any proceeds from the sale of the home because the home is worth less than the mortgage.
- A debtor might be considered judgment proof if the income they receive is exempt from seizure by creditors. For example, seniors or the disabled receiving social security payments would be considered judgment proof if that was their only asset. However, a debtor who had no physical assets but earned wages at a job; might not be considered judgment proof because a creditor who wins a lawsuit against them might be able to garnish their wages.