What Does it Mean to Be Judgment Proof?

Senior woman reading her mail.

You’re living on a small monthly Social Security check, and you’ve fallen so far behind on paying off that large medical bill that you have no idea what to do. Creditors are calling and you’re worried—can they garnish your Social Security income?

If you are low income, you may qualify as “judgment proof,” a term indicating status that protects Social Security benefits and certain other sources of income from most creditors. But many consumers don’t know about the federal laws that provide protection for low-income seniors, veterans, people who are permanently disabled, and others. Here’s what you should know if you’re carrying debt.

How does being judgment proof work?

If you fall into the low-income bracket and have limited to no assets or cash reserves, certain kinds of income, such as Social Security benefits, cannot be taken from you to pay your debts (with some exceptions). Being judgment proof means these income sources are protected, and creditors can’t legally garnish your bank account to collect most types of debt. Income sources exempt from garnishment include:

  • Social Security
  • Disability (SSI)
  • VA benefits
  • 401(K)
  • Individual Retirement Account (IRA)
  • Pension
  • Unemployment insurance
  • Public assistance

Lawmakers created these protections so that seniors and other financially-vulnerable consumers can prioritize paying for their basic needs even if they have unpaid consumer debt, such as credit card debt, a personal loan, or unpaid medical bills. In other words, even if you owe a debt, the creditor (or a collection agency working on the creditor’s behalf) cannot forcibly take your exempted income if you’re considered judgment proof, as they could from someone who is employed and on a payroll.

Exceptions based on the type of debt

Even if you qualify as judgment proof, there are certain kinds of debt that fall outside these legal protections, and your exempted income could possibly be garnished toward what you owe. These types of debt include federal student loans, unpaid child support or alimony, and money owed to the Internal Revenue Service or other federal agency. In these situations, it’s possible that a collector could obtain a garnishment and take protected income.

Check the statute of limitations in your state

Every state has a statute of limitations (time limit) on creditors being able to sue you for payment on a debt, usually between six and 10 years. But it depends on your state and the type of debt you owe. And even if the time limit has passed, creditors may still try to collect.

Being judgment proof may not protect secured debt

Mortgages and car loans are called secured debts. That is, they’re backed by collateral (the car or the home), and the creditor has the right to repossess or foreclose on the property if you fall behind on the loans used to purchase or refinance them.

Even you own a home outright, a “judgment lien” could be placed on the property so that if you sell the home (or your heirs do), the sale proceeds go toward satisfying other outstanding debt before you or your family can collect anything left over.

However, having some equity in a home doesn’t necessarily mean it’s going to be taken from you if you owe someone money, particularly if you’re a senior. Exemptions exist, so it’s important to learn more about your rights in your state.

Rules for bank account balances if you’re judgment proof

If you qualify as judgment proof, you are allowed to hold a limited amount of money in your bank account. The amount that’s protected from creditors is twice the amount of your monthly benefits—but no more than that. For example, if you receive a monthly Social Security retirement benefit of $1,500, then $3,000 in your bank account is protected from creditors, even if some of it comes from another source like a gift.

It’s important not to exceed the protected amount. If your bank account exceeds that amount at any one time, you risk a lien being placed against your account. That means the bank could freeze your account if it receives a written order from a creditor. Remember, creditors can still garnish non-protected income. Don’t try to hide assets. That could backfire and result in negative consequences.

Where to get help for personal debt problems

Let’s say you’re a low-income senior who lives on Social Security, and you have a medical bill you can’t afford to pay off. The creditor is calling daily and hassling you, causing stress and worry. Here are steps you can take:

  • Ask for financial aid or “charity care”. Hospitals and medical providers will often reduce or waive charges for income-qualified individuals, but it’s important to take action quickly when you receive the bill. Request a financial aid application, fill it out completely, and return it with all requested documentation. If you need help, visit Dollar For, a charity that advocates for patients to eliminate medical debt.
  • Send a cease-and-desist letter to stop the calls. You can find templates online. When you send the letter, send it registered mail with a return receipt so you have proof of delivery. Keep in mind that sending a letter could speed up legal action by the creditor. Try not to panic if you are sued.
  • Reach out for help. Nonprofit credit counselors like MMI can provide referrals to local legal aid organizations. You can also call 2-1-1 and ask for legal aid in your area. Additionally, nonprofit organizations like HELPS can provide free or low-cost help to income-qualified people. These organizations can help you understand your legal rights and responsibilities regarding debt collection.

Seek guidance to address financial troubles

You don’t have to wait until you’re in a legal bind to get help. If you’re experiencing unaffordable debt, get assistance now from a nonprofit credit counselor like MMI. Our advice is free and completely confidential. The counselor may be able to help you reduce your expenses through needs-based community referrals and make life more affordable. Don’t put off asking for guidance.

Begin your free session today, over the phone or online.

Tagged in Debt collection, Laws and legal questions, Seniors

Thomas Nitzsche.

Thomas Nitzsche is Sr. Director of Media and Brand at MMI, where he uses his personal experience and professional expertise to create conversations about money and destigmatize debt.

  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Candid GuideStar Gold Transparency level 2022 Candid
    MMI has achieved a Gold Seal of Transparency by Candid (formerly GuideStar), a leading source for insights on thousands of nonprofit organizations. For decades, Candid has provided data that powers hundreds of websites, programs, and applications related to philanthropic giving in order to help grantors make informed decisions.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.