In my Solano County, California-based, online Consumer, Family and Bankruptcy practice, I come across many individuals who are determined to file bankruptcy. Most times, the strong desire to file bankruptcy is fear-based, not fact-based. I recommend you take my test to determine whether you are judgment-proof?
First, Let's Define the term "Judgment Proof."
The term "judgment proof" means that, based on your financial situation, there is no option available for the creditor(s) to collect on his judgment. A judgment creditor's options are usually the following three options; 1) put a lien on real property; 2) levy bank accounts; and, 3) garnish wages.
1. Are you unemployed?
First, if you don't have a job, is it because you are temporarily unemployed or permanently unemployed? If are experiencing long-term or permanent unemployment, then there are no wages for a creditor to garnish.
2. If employed, do all of your take-home wages barely cover your basic necessities?
Basic necessities include rent, food, utilities, etc. They do not include credit card payments, entertainment, hobbies and the like. So, if at the end of the month you have nothing left over after you pay your basic necessities, then the chances of a creditor being able to garnish your wages is nearly impossible.
3. Do you own a home (or homes)?
If you answered no, then you have no home for a creditor to place a lien upon.
4. Is your only source of income from Social Security? (This question for Retired debtors)
Most retired senior citizens receive social-security income and nothing else. Social security income is legally exempt from collections by creditors. Both California and federal law consider Social Security as income that is immune from collectors.
5. Do you have little to nothing in your checking account after you pay your bills for monthly necessities and no savings?
If you answered yes to this question, there is nothing for the sheriff to levy from your bank accounts. Levy means that the sheriff, acting under a Writ of Execution from the judgment creditor (e.g. Capital One), can instruct your bank to empty out your bank account.
6. Do you have any other assets?
Other assets include stocks, bonds, trusts or anything else that has equity and is owned "free and clear." If you answered no because either you have no such assets or because the assets that you own have no equity (for instance, you own more on the asset than what it is worth), then a judgment creditor cannot take legal possession of these types of additional assets.
Test Results and What Do They Mean?
Did you answer "yes" to all questions above or "yes" to most of the questions, and then you are judgment proof! This is important. Why? Because this means that you have other options besides pursuing bankruptcy. While bankruptcy is a strong protection and legal right available to us all, it's not the only option for someone facing creditor harassment.
So what are your alternative options to Chapter 7 or Chapter 13 bankruptcy if you are judgment-proof?
1. Sending insolvency/judgment proof letters to your creditors with PROOF of your insolvency. You would be surprised how many times this actually works! The key here is providing proof as it is not enough to just say you are judgment-proof.
2. Preparing a timely Claim of Exemption form and Financial Statement. Should a judgment creditor attempt to collect on his judgment, preparing a timely Claim of Exemption form and Financial Statement that reflects that your expenses for your basic necessities exceed your monthly take-home pay may be all that is needed to stop the wage garnishment and/or bank levy.
3. Negotiating a settlement. This means working with your creditor to pay a fraction of the total amount owed on the original debt balance. For instance, you and creditor agree that you will pay 50% of the total amount owed as full and final payment. In my own practice, I have seen creditors go down as low as 10 to 15 cents on the dollar!
4. Working with a REPUTABLE debt-consolidation agency to consolidate your debt into one low payment for a period of approximately four years. These types of debt-consolidation agencies are able to negotiate very special pay-back terms with creditors, e.g. 0% interest or reduced interest rates, and/or eliminating late fees.
5. Sending cease and desist letters via certified mail to stop the harassing calls at home and work. By both state and federal law, a third-party collection must immediately cease any and all calls once he is in receipt of the cease-and-desist letter. Many times this is the primary goal of individuals filing for bankruptcy--to stop the harassing calls.
6. Sending a "request to validate" letter, via certified mail, to the third-party collection agency ("TPC"). Once a TPC receives your letter, they are required to provide you with the documentation that not only are you legally responsible for paying the debt, but also validating that you owe the entire amount that they are requesting. By law, the TPC is required to cease all debt collection efforts until the debt has been validated. For example, I have seen debt collectors grossly inflate the debt, asserting the debtor owes $10,000 when the original debt was only $4,500 and/or adding on illegal fees.
7. Holding off on filing bankruptcy for a while. For many folks--timing of when they file bankruptcy is very important. For instance, if you are in the middle of a trial modification-- bankruptcy could have adverse consequences to your loan modification; or, you may be having surgery in the future and have unpaid medical bills to add to your bankruptcy. Filing bankruptcy now would exclude the future medical debts.
If you are judgment-proof, then you have many alternatives to bankruptcy.
Note: This guide was not written to replace sound legal advice from a consumer or bankruptcy attorney. It was designed to serve as a catalyst for discussion between yourself and an attorney.
Contact Linda Garrett, at the Law Office of Linda C. Garrett, if you would like a consultation or coaching in connection with any of the recommendations made on this blog entry.
Copyright © 2011 by Law Office of Linda C. Garrett. All rights reserved.