Still today millions of recipients of social security benefits find themselves in the difficult position of being unable to pay their bills. Part of the review process for determining whether or not an individual is a good candidate for bankruptcy is evaluating whether or not the person is “Judgment Proof”. You may be considered “Judgment Proof” during periods of unemployment or while drawing disability or social security benefits and have no assets such as home, car, land, etc.
This does not mean that you have no legal duty to pay the debt for which you are liable. But what this does mean is that pursuant to Federal Law, Social Security benefits are off–limits to creditors, such as credit card companies and banks. That means that even a creditor with a judgment cannot intercept your Social Security payments nor can they take the money from you after it has been paid to you.
In addition to the federal exemption for Social Security benefits, each state has laws protecting certain assets from the individual’s creditors. These exemptions are available without filing bankruptcy. Most retirement plans, pensions, and 401(k) plans are also exempt from collection.
So we advise many of the social security recipients that we meet with that they may not have to file a bankruptcy because the creditors can not collect any of their then held assets.
That’s the good news. The bad news is that the U.S. can still collect debts to federal agencies by offsetting, or withholding Social Security and disability payments. The Treasury currently withholds benefits of approximately 3 million Social Security recipients to recover defaulted student, farm and small business loans, unpaid income taxes, amounts veterans owe for health care, and other debts to the government.
Never stop making payments to creditors or ignore a lawsuit or court appearance notice just because you believe that you are judgment proof, broke or have no assets! If a debt collector or creditor is trying to sue and you believe that you are judgment proof, you must respond to the lawsuit as such. Failure to appear and show the judge why you are judgment proof opens the door for the judge to grant the collector default judgments. Even though they cannot collect anything from you now, they can wait many years and try again. Also, the judgment will show up on your credit report.
If you are being sued or harassed by a creditor it is imperative to get competent legal advice from an attorney regarding your rights and obligations. Determining whether or not your income, social security, disability, etc., could be subject to a collection action is a complicated evaluation.
