What It Means to Be “Judgement-Proof”
Prior to the establishment of the United States, people in England who did not pay their debts were sent to debtor's prison. Today, in the United States, there is no debtor’s prison and creditors can only enforce judgments if they can locate the assets of the judgement debtor, and have them sold to liquidate the debt or by garnishing their wages. If a debtor truly has no job or assets, he is said to be “judgement proof” because a judgment creditor has nothing to sell or garnish. Many debtors, however, merely pretend to be judgement proof! They really do have assets, but attempt to hide them.
Assets may not be seized simply because a “claim” or “debt” exists, but once a lawsuit has resulted in a judgement, the judgment debtor’s assets can be seized in order to satisfy the judgment. Note that certain assets are exempt from enforcement:
- Social Security payments;
- Disability payments;
- Child support payments;
- Certain retirement accounts; and
- Funds in bank accounts totaling less than $2,100.
The remainder of the judgment debtor’s assets beyond the scope of enforcement can be seized and liquidated in order to satisfy the judgement. These assets include:
- Funds in bank accounts in excess of $2,100, which can be restrained, provided the judgment creditor can locate them;
- Personal property; or
- Real estate, where, upon entry of the judgment in the county clerk’s office, the judgement creditor automatically acquires a “lien” on any real estate owned by the judgement debtor in that county.
In the case of real estate assets, the “lien” allows the real estate to be sold at a public auction, but a judgment debtor’s residence is subject to New York’s “Homestead Exemption,” which protects $150,000 per person from judgment executions. Accordingly, judgement creditors will often times just wait for the judgment debtor to sell or refinance their residence, at which time they will get paid in exchange for providing a “Satisfaction of Judgment” certifying that the judgment debt has been paid, required for the sale or refinance.
In addition to locating and liquidating assets, judgement creditors can also serve an income execution to the local Sheriff or Marshal (within the City of New York). This will then garnish 10% of the judgment debtor’s salary until the judgement and all Sheriff or Marshal fees have been fully paid. Finally, even if the judgement debtor truly has no assets or income, and a judgement against him or her cannot be enforced today, the judgement debtor may not be “judgement proof” forever. How? A judgement is valid for 20 years! Should the judgement debtor become employed or acquire any assets within those 20 years, the judgment creditor will then be able to enforce the judgment.
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Peter T. Roach & Associates, P.C.