A judgment creditor looking to get paid may be told by the debtor’s attorney that the debtor is judgment-proof. Being judgment proof is a scenario in which the debtor does not have the financial resources to pay, nor does he have any reasonable prospects for the future. But creditors do not have to simply accept such claims. There are ways to verify them.
The problem with going after a legitimately judgment-proof debtor is investing a lot of time and money and having nothing to show for it in the end. Collection efforts simply are not worth it if there is no chance of being paid. Judgment debtors and their attorneys know this, so there are cases when attorneys float the judgment-proof idea to see if a creditor will walk away.
Multiple Means of Collection
Salt Lake City’s Judgment Collectors suggests that the creditor’s starting point is understanding the many means of pursuing judgment collection. The simplest and easiest way to collect is to arrange a payment plan with the debtor. If a creditor simply wants to settle the issue and put it in the past, a settlement is another option. The creditor agrees to accept less in exchange for an immediate lump sum payment.
In the absence of either a payment plan or settlement, the other options include:
- Wage and bank account garnishment
- Property and judgment liens
- Writs of possession (when personal property is involved)
- Writs of execution on nonexempt assets
All these options have time constraints and financial costs attached to them. So even if a debtor isn’t necessarily judgment-proof, does he have enough value in his assets to make collection efforts worthwhile?
How to Verify Judgment-Proof Claims
So how would a creditor go about verifying claims of being judgment-proof? It starts with interrogatories and debtor’s exams. Interrogatories are a legal tool framed as a series of written questions about the debtor’s income and assets. Some states start with interrogatories while others move immediately to the debtor’s exam.
A debtor’s exam is a legal proceeding in which the debtor is compelled to reveal all information about assets and income. Some states allow courts to issue bench warrants forcing debtors to show up for debtor’s exams.
If interrogatories and a debtor’s exam does not reveal enough information, a judgment creditor can go further. Other means of verifying judgment-proof claims include:
- Subpoenaing the debtor’s bank
- Verifying income with the debtor’s employer
- Searching property records
- Running a credit report analysis
- Running a bankruptcy risk assessment
- Examining tax returns (in states where it is allowed)
These sorts of tasks require time and effort. They may not be something an individual or small business is capable of. In such cases, bringing in a specialized collection agency is probably a better option. Collection agencies have the tools, resources, and experience to find out just how judgment-proof a debtor actually is.
Circumstances May Change
Something else to consider is the fact that a judgment-proof debtor might not be judgment-proof forever. Circumstances could change in the future. For example, perhaps the debtor gets a better job with a significantly higher salary. Maybe he inherits a piece of property from a parent or grandparent.
Most judgments have statutes of limitation of 7-10 years. A lot can change in that time. So determining that a judgment debtor is judgment-proof isn’t necessarily the end of the matter. A creditor waiting to hold on while keeping an eye on things could ultimately get paid at some point down the road. On the other hand, it is always possible that a judgment-proof debtor will always be that way.