By Deb Miller - West Virginia Senior Legal Aid Contributor
What does it mean to be judgment proof or collection proof?
In general, a creditor can always go to court to collect a debt by filing a civil lawsuit, showing appropriate information, and getting a judgment against the person for the unpaid amount.
However, that doesn’t mean the creditor will be able to collect all or any of the debt, unless it is secured by collateral of some type or the debtor’s wages can be garnished.
On the debtor’s side, many continue to worry about the collectibility of a legal judgment against them on a debt even when they don’t have any property, wages, or assets that can be taken by the creditor. At that point, with no way for a creditor to collect the debt, the debtor is said to be judgment or collection proof.
Under federal law, a person’s Social Security, Veterans Administration, Supplemental Security Income, and other federal benefits are automatically protected from collection. If the benefits are electronically deposited into a bank account or prepaid card, up to two months’ worth of the federal benefits are protected from collection, but higher amounts in the account can be legally withdrawn by the creditor if available. Learn more at https://consumerfinance.gov.
Further, under the Employee Retirement Income Security Act, funds in retirement accounts such as a 401(k) are protected from creditor claims. Also, funds from a pension plan are shielded from protection. However, funds in traditional and Roth IRAs and some 403(b) accounts can be taken to satisfy a judgment.
With certain exceptions, West Virginia Code sec. 38-9-3 provides a $5,000 homestead exemption on a home from collection by creditors. If medical expenses from a catastrophic illness are involved, an additional amount up to $7,500 of the home’s value can be protected from collection. Filing for bankruptcy can protect more of the home’s value. Also, a $5,000 exemption on a personal vehicle from collection is available.
When a person’s financial situation makes them collection proof, they do not have to file for bankruptcy to prove it or do anything further about their debts. The lack of collectible assets or property protects the debtor from any actions by creditors.
Having a civil judgment filed against a person on a debt is not a crime and has nothing to do with the criminal system. The debtor cannot be arrested or sent to jail over the unpaid debt or court judgment.
If the debtor is a tenant living in a rental unit, he or she can’t be evicted because of the judgment unless the debt was unpaid rent.
Some whose debts go to judgment have run up large credit card account balances. They may not be aware that credit card companies can charge very high interest rates on unpaid amounts, which are legal in West Virginia because of the state laws where the company was incorporated.
After a debtor dies, the heirs of the debtor will not be responsible for paying the debts themselves, but a creditor can file a claim against the estate’s assets if the judgment is still valid. That can reduce or eliminate the inheritance.
Anyone age 60 or over living in West Virginia with questions about garnishment, collections, or other legal issues may contact West Virginia Senior Legal Aid at 800–229-5068 or info@seniorlegalaid.org.
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