What does it mean to be judgment-proof?

By Gideon Sandford

Reviewed by Keith Osmun

Aug 06, 2023

Read time: 4 min

Happy elderly woman in the wheelchair

Key takeaways:

  • Your income and assets may be safe, even if a credit card company wins a judgment against you.

  • If you’re judgment-proof, you have no income or assets a creditor can take.

  • If your financial situation changes in the future, you may no longer be judgment-proof.

Serious debt can bring serious stress. Nobody likes to get sued, and if you’ve been served with a lawsuit for unpaid debts, you may be tempted to panic. If you truly owe the money, your creditor may get a court judgment against you for the loan amount, plus interest and fees.

But even if they win a lawsuit, your lenders may not be able to touch your money—if you’re judgment-proof.

Being judgment-proof isn’t a magical solution. It’s a legal principle that protects people who genuinely can’t afford to repay their debts. It’s not about avoiding responsibility. It’s about standing up for yourself so that you can remain on a path to financial stability while protecting your basic necessities during tough times.

What does it mean to be judgment-proof?

If creditors sue you in court and win, the court gives them a judgment against you. That judgment can allow your creditors to take some of your income until the loan is paid back. The court may also allow them to sell some of your valuable personal property.

But even if creditors win a lawsuit against you, there are strict legal limits around what kinds of income and assets they can take from. If your income and assets are exempt (legally protected), you’re considered judgment-proof. 

You may be judgment-proof already. Senior citizens and people receiving disability and retirement benefits are especially likely to be judgment-proof. 

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What kinds of income are exempt?

Exempt income is protected from creditors. Even if they have the legal right to seize your bank account, they can’t freeze or take the money in your account if it’s from a protected source. Here are some of the most common forms of exempt income:

  • Social Security old age, survivor, and disability benefits

  • Supplemental Security Income

  • Unemployment compensation

  • Veteran and disability benefits

  • Child support and alimony

  • Income from pensions and retirement accounts

  • Some or all of your wages or salary, depending on your state

If exempt income is taken from you, you can ask for it back.

Some states exempt other kinds of income and assets, so talk with a lawyer or legal aid society to find out whether your income makes you judgment-proof.

Even if a creditor has the right to take and sell your assets, they may choose not to. For example, it may cost more to sell a used car than the lender would receive from the sale.

How to become judgment-proof

If you think you might be judgment-proof, you'll probably need to take steps to prevent your income from being taken, or garnished. Garnishment is when a creditor forces your employer to withhold part of your paycheck for repayment of a debt. 

Search for “assets exempt from judgments in [your state]” to get a sense for what’s protected.

If you have exempt income that’s deposited directly to your bank account, send a letter to your bank telling them the income is exempt. That’s especially important if you’re paid in cash or by check, since your bank may not know the source of the income.

You can also notify your lenders and the court that your income is exempt, so they won't try to take it.

If you have exempt and non-exempt income, avoid mixing it. For example, if you receive both Social Security benefits and a paycheck, keep them in separate bank accounts to protect your Social Security income.

What to do if you're not judgment-proof

If you’re not judgment-proof, you will probably need to repay the debt. Other than paying it, the only way to get rid of a judgment against you is to successfully discharge the debt in bankruptcy. In a Chapter 7 bankruptcy, the judgment can be voided. In a Chapter 13 bankruptcy, the judgment will be included in your structured repayment plan that lasts three to five years. 

Even if you’re not judgment-proof, lenders may be willing to negotiate to resolve your debt. Especially if you have little or no income, creditors may reduce the amount you owe, lower fees and penalties, or agree to a payment plan.

It’s often easier to negotiate your debt before you get sued and lose. If you receive a notice that a creditor is suing you, answer the summons on time and try to avoid going to court.

Getting rid of debt is a journey that starts with a single step. The best thing you can do when you’re facing serious debt problems is to get a financial professional on your side. Complete a free debt evaluation form and talk to a debt consultant who can help you understand your options for moving forward.

Gideon Sandford

Gideon is a financial expert who writes about financial planning, access to credit, and debt strategies. He has over a decade of experience helping readers manage their money and use debt responsibly.

Keith Osmun

Keith is an editor and fact-checker for Achieve. He makes sure the content is accessible by ensuring that each piece has impeccable grammar, an approachable tone, and accurate details.

Frequently asked questions

Most states protect some assets from creditors, but the type and value of the protected assets vary.

The assets that are protected from creditors can vary, depending on where you live and other factors. Here're some common types of assets that could be protected in certain situations:

Homestead exemption

Most states have a homestead exemption, which protects a certain amount of equity in your primary residence from being seized by creditors. 

Retirement accounts

Qualified retirement accounts, such as 401(k)s, IRAs, and pension plans, are often protected from creditors to varying extents.

Life insurance and annuities

Proceeds from life insurance policies or annuities may have protection from creditors, particularly if the beneficiary is a spouse or a dependent.

Tools of trade

Some states protect tools, equipment, or other assets necessary for you to earn a living in your profession or trade.

Exempt personal property

Certain types of personal property, such as clothing, furniture, household goods, and necessary personal items, are typically exempt from creditor claims up to a specified value.

Wages and Income

There are usually limitations on the amount of wages and income that can be garnished or seized by creditors, providing a degree of protection.

Even if your income and assets make you judgment-proof, your creditors can still sue you. Lenders may want to receive a court judgment against you to intimidate you into paying. If your income increases or you have more non-exempt assets in the future, lenders can use existing judgments to try to collect. In most states judgments expire after 10–20 years, but the creditor can apply for an extension.

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