Should I File for Bankruptcy If I’m Judgment Proof?

By Cara O'Neill, Attorney
If you don't have any assets that a creditor can take from you, you're judgment proof, and filing for bankruptcy will likely be unnecessary—unless you expect your financial situation to improve in the future.

Before a creditor can take your money or property to pay off delinquent debt, the creditor must first file a lawsuit and obtain a judgment stating the amount that you owe. Once the creditor has the judgment, it can seize your assets without your consent. If you don’t have anything of value, however, you’re considered “judgment proof,” and likely don’t need to file for bankruptcy. But that’s not always the case. Bankruptcy can be a good option if your financial situation might improve or if you receive a lot of annoying creditor calls and want them to stop.

(Learn more about what it means to be immune from a creditor’s judgment in What It Means to Be Judgment Proof: Your Creditors Can't Collect From You.)

You Don’t Need to File for Bankruptcy If You’re Permanently Judgment Proof

Most judgment-proof people have little or no income and need every penny to pay for their basic living expenses. If you fall into this category, and there is no reason to believe that your financial situation will improve, it’s unnecessary to use your limited income to pay for a bankruptcy case. If you don’t have assets that a creditor can seize, it’s as if the debt doesn’t exist.

Reasons You Still Might Want to File for Bankruptcy

Most judgment-proof individuals easily qualify for Chapter 7 bankruptcy and can quickly wipe out unsecured debt, such as credit card balances, personal loans, overdue utility balances, and medical bills—and sometimes it makes sense to do so. If any of the situations below apply to you, filing for bankruptcy might be the right choice.

You Might Get a Job

Just because your creditors can’t get anything from you now doesn’t mean that your financial situation won’t change in the future—and if it does, you might be stuck paying for a debt that you could have wiped out (discharged) when you were judgment-proof. Taking care of past-due debt will ensure that you’re in a sound financial place when you land a job and get back on your feet.

You Might Receive an Inheritance, Settlement, or Financial Windfall

If you win the lottery, receive insurance proceeds, or inherit significant assets, you’ll lose your judgment-proof status because you’ll have an asset that your creditors will likely be able to reach. Also, you probably won’t be able to protect your new-found assets by filing for Chapter 7 bankruptcy because you’re only allowed to keep (exempt) a modest amount of property—especially in the case of lottery winnings or an inheritance.

(To find out about the property you can protect in bankruptcy, see How to Find Your State’s Bankruptcy Exemptions.)

You Want the Annoying Creditor Calls to Stop

Being judgment proof doesn’t stop the phone from ringing because lenders know that if you’re harassed enough, you just might pay your debt. Although changing your telephone number works well to solve the problem, some people don’t want to go through the hassle of giving friends and family the new number. If stopping collection activity is your goal—and it often is for retired people who are otherwise judgment proof—filing for bankruptcy might be the answer.

How to Pay for Your Bankruptcy When You’re Judgment Proof

Most judgment-proof individuals ask family and friends to help pay for bankruptcy fees when they’re temporarily down on their luck but anticipate that their financial situation will improve. Also, some lawyers will reduce attorneys’ fees significantly if your income is low enough (150% or less of the federal poverty guidelines) to qualify you for a waiver of the bankruptcy filing fee.

Before proceeding with bankruptcy, however, it’s important to ensure that bankruptcy makes sense because some debts, called “nondischargeable debts,” aren’t wiped out in bankruptcy. An attorney can review your case and determine whether you are judgment proof, whether you’ll benefit from filing for bankruptcy, and whether you’ll qualify for a bankruptcy filing fee waiver.

Questions for Your Attorney

  • Am I permanently or temporarily judgment proof?
  • How might I benefit from filing for Chapter 7 bankruptcy?
  • Do I qualify for a filing fee waiver?
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