Are you Judgment-Proof?

Wipe Out DebtVery few people are truly judgment proof.  A creditor’s ability to collect debt is largely dependent on the laws concerning exemptions and debt collection in the state in which the debtor lives.  Exemptions are laws that prevent creditors for seizing property from a debtor.  Texas has very good exemptions.  For example, the homestead exemption allows a resident to protect an unlimited amount of equity in a residence.  The only limitation is the amount of acreage that can be protected using this exemption.

In Texas, most creditors cannot garnish wages.  The main exceptions to this rule include the Attorney General, Internal Revenue Service, and federal student loan creditors.  A credit card company that has obtained a judgment against a borrower cannot garnish wages.  However, once that money is deposited into an account it can be seized by garnishing the account.

Garnishment of an account basically creates a lien against the funds in the account.  The lien is enforced and the money seized.  Creditors can seize funds in bank accounts over and over again.  The main limiting factor is that there are costs associated with garnishment.  The creditors can recoup their costs from the funds garnished, but if they don’t seize enough to pay the costs then they lose money in the process, and the amount owed to the creditor grows rather than being reduced.  Garnishing an account rarely results in satisfaction of a judgment.  Most debtors simply don’t have enough money in their accounts to pay off the debt.  If they did then they most likely would have settled the debt before now.

Creditors can also attach liens against the debtor’s other nonexempt property.  This may include rental property or other real estate other than the home in which they live.  If the debtor has any stocks, bonds, mutual funds, or other financial accounts other than retirement accounts, then the funds in those accounts can be seized.  (Continued).