The phrase “judgment proof” typically refers to a situation where a person being sued is unable to pay, or receives income or support that is protected by various state or federal laws. Therefore the person probably would not be forced by a court to make involuntary payments to whoever is suing or has obtained a judgment. However, people should not necessarily rely on their apparent “judgment proof” status as a source of protection against their creditors because:
- being “judgment proof” will not make a lawsuit go away;
- it is usually only a temporary status and could fail to provide permanent protection; and
- it will not stop all collection efforts.
These reasons are explained more fully below, along with other solutions for dealing with a creditor who is suing to collect a debt or who has already obtained a court judgment.
A Lawsuit Will not Disappear Because Someone is “Judgment Proof”
When a lawsuit is filed, the person suing (i.e. the plaintiff) must prove their case to the court. During that process the person being sued (i.e. the defendant) has an opportunity to present defenses and raise their own claims against the plaintiff. Being “judgment proof” is never a defense to a lawsuit. A court will not dismiss a case because a defendant has no money to pay. Ignoring a lawsuit on those grounds is a bad idea and only makes the plaintiff’s job of proving their case and obtaining a judgment that much easier. Instead, it is better to answer the lawsuit and present defenses (if they exist) to prevent a judgment from entering in the first place.
Being “Judgment Proof” Does Not Always Provide Long Term Protection
After a plaintiff obtains a favorable court order, it will likely take steps to compel the defendant to make payments. Such efforts could include wage garnishment, attaching bank accounts, or placing liens on the defendant’s property. If someone is “judgment proof” a court may decline a plaintiff’s request for an order compelling payments at that time. However, judgments have a long life (20 years in Rhode Island, for example), during which interest may be accruing. During that very long period, the judgment balance is probably only increasing and creditors can continue to look for assets or money held by a defendant and return to court trying to collect. If a defendant’s financial circumstances improve—through a new job, inheritance, receipt of insurance proceeds, winning the lottery, or other means—the “judgment proof” status almost always melts away and the newly acquired assets and monies are at risk of being taken by creditors.
Not All Collection Efforts are Stopped By a Person’s “Judgment Proof” Status
As explained above, most judgments have a very long life. During that time, creditors can pursue several routes for collecting money from the defendant. In addition to liens, garnishments, and bank attachments, creditors use other less formal means to prompt payment, such as sending letters and making collection calls. A court is unlikely to assist a creditor with an attachment or wage garnishment if a defendant is “judgment proof”, but that status will usually not stop the plaintiff from dispatching collection letters or otherwise contacting the defendant seeking to be repaid.
Being “judgment proof” May not Always a Good Thing.
That status should not be viewed as a permanent shield. It is almost always better to proactively respond to lawsuits to present a viable defense and prevent judgment from entering in the first place. And, when a judgment has entered, it may be best to also deal with it head on to prevent surprises from cropping up years later in the form of a lien, garnishment of wages, or attachment of a bank account.