When you want to find a solution to your debt problems, it's common to ask whether bankruptcy could be your answer. Depending on the facts, bankruptcy may not be the best choice, especially when you are "judgment proof."

If you're judgment proof, creditors can do virtually nothing legally to obtain money or property from you. Bankruptcy has costs and consequences, and your status as judgment proof may impact how bankruptcy would work for you. Know the factors to consider if you're judgment proof and thinking about bankruptcy.

Characteristics of Being Judgment Proof

An existing creditor or someone with a legal claim may file a lawsuit against you and win. However, it's one thing to have a judgment, and another to collect on it. Creditors can't obtain money from people who are judgment proof because they are:

  • Insolvent, having no assets to be collected
  • Don't have enough property to pay a creditor's claim or judgment 
  • Protected by laws that exclude wages and property from being used to pay a debt

Other Factors

Other factors to consider are:

  • Are you likely to increase your debt? Most of the time the answer is "no." Debts arise most often because you lose a job due to layoff, disability or retirement. If you expect more bills, medical expenses for example, which you can't control, you may want to time a bankruptcy filing so all debts are included in your case
  • Do you have a few debts? If so, the best way to approach these debts may be a settlement or lawsuit outside of bankruptcy court. If you want to go to court over the debts, ask yourself how related costs and fees figure into the bottom line
  • Timing matters, whether you plan to file a bankruptcy case, or you think a creditor plans a lawsuit against you. Often you only have one chance to have a court address a legal issue, so the decision of when to go to the courthouse can matter

Making a Choice

Ultimately, you must make a choice. There are pros and cons to bankruptcy and alternate debt relief methods. Will bankruptcy in some way have a positive effect on your finances and life? For some people, financial pressures are so bad that bankruptcy is the best solution. Others just want the peace of mind that bankruptcy can give. The decision is yours and is different for everyone.

Questions for Your Attorney

  • Can creditors obtain money from me if I am judgment proof?
  • If I'm judgment proof now, would bankruptcy give me a final judgment on my debts in case my finances improved in the future?
  • Should I file a petition in bankruptcy if I am judgment proof?

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