Monday, April 14, 2008

Collections Law: Judgment Proof - What is it?

Judgment proof means no one can get a debt paid through legal process.

Forget about blood from stones. Someone is judgment proof when they lack a garnishable wage, and no non-exempt property. This category includes many who think of themselves as "stones".

Indiana's property exemption statute is IC 34-55-10-2. I admit that it is hard to execute or attachment non-exempt property. The chief reason being that the dollar amounts are set at fair market value and the amount of liens found on some types of property (such as mortgages). Getting to the value of the property requires an appraisal and IC 34-55-4 gives some solace to the debtors.

With property hard to get at, garnishing wages appeals as the easiest way to collect a judgment. Indiana's statute setting out how much of one's wages are exempt from garnishment is both long and long-winded, and I quote only part of it in the following:

IC 24-4.5-5-105: Limitation on garnishment and proceedings supplemental to execution; employer's fee
(1) For the purposes of IC 24-4.5-5-101 through IC 24-4.5-5-108:
(a) "disposable earnings" means that part of the earnings of an individual, including wages, commissions, income, rents, or profits remaining after the deduction from those earnings of amounts required by law to be withheld;
(b) "garnishment" means any legal or equitable proceedings through which the earnings of an individual are required to be withheld by a garnishee, by the individual debtor, or by any other person for the payment of a judgment; and
(c) "support withholding" means that part of the earnings that are withheld from an individual for child support in accordance with the laws of this state.
(2) Except as provided in subsection (8), the maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment to enforce the payment of one (1) or more judgments against him may not exceed:
(a) twenty-five percent (25%) of his disposable earnings for that week; or
(b) the amount by which his disposable earnings for that week exceed thirty (30) times the federal minimum hourly wage prescribed by 29 U.S.C. 206(a)(1) in effect at the time the earnings are payable;
whichever is less. In the case of earnings for a pay period other than a week, the earnings shall be computed upon a multiple of the federal minimum hourly wage equivalent to thirty (30) times the federal minimum hourly wage as prescribed in this section.
Many find themselves facing a garnishment because they do have a garnishable wage. The usual response is either: 1) that means my other bills will not get paid, or 2) I will file bankruptcy. As a collections attorney, I am not necessarily concerned with either scenario but only with getting money for my client.

The only truly judgment proof debtor (and yes, there could be exceptions here) receives Social Security benefits. See my post Garnishing Social Security Benefits about that subject.