Bankruptcy

Sitting Below the Salt; Who Is Judgment-Proof and Need Not File Bankruptcy?

By Joseph McDaniel, Esq.

Okay, don't pity him, but understand him.

It's not so easy to collect debt during a depression.

Which is why you so often get to see banks, after they have charged off a debt, sell the paper evidencing the debt to somebody who isn't a bank, and those folks sell again, and then those folks try to collect the debt.

And sometimes they might as well try to fly, because you can't get blood out of a turnip.

Which is probably a good thing for turnips, after all.

So pretend for a moment that you are trying to collect a debt from somebody who owed money to a bank; they're a stranger to you, and you don't know as much about them as you would like.

So you send a demand letter to them, and they, as is so often the case, do not respond (often because they're overwhelmed by demand letters, collection calls, and small claims court or justice court lawsuits).

So you sue them, like you do, and you get a judgment.

Which you might as well use to light your cigar, for all the good it will do you.

And that's because they are "judgment-proof".

Now, that's just a phrase in the debt industry indicating that it's harder to collect from some people who owe money, and it's downright impossible to collect from others.

I have written in the past about the son of a successful businessman who became an economic pet of his father, and a beautiful nurse who became the economic pet of a brilliant doctor (and how do I know he was brilliant? did you take a look at her?).

If somebody doesn't have anything to grab, you can't grab much from them, whether from their bank account (got none), their car(they don't own one; they drive their dad's car!), or their house (none).

So among those who can't be effectively squeezed for money by creditors, you have category 1, "pets", among those who cannot be the subject of effective collection.

Then you got your involuntary judgment-proof folks; there are too many decent, life-long hard workers who now survive on Purina and Social Security. And after many moves to their unfurnished apartment, they lost a lot of furniture and possessions along the way (they say three moves are as good as a fire, and I agree).

And collecting from somebody in an unfurnished apartment with only social security for income is a difficult thing, and that, in turn, is a good thing.

Leave them alone, darn it!

On the other other hand, sometimes I explain to people that they are, as far as I can tell, judgment-proof, and they want to file a bankruptcy even after I tell them I think it's not necessary.

And those are folks who are just tired of telling collection agencies and creditors in general and lawyers in particular that they are dry wells, and they want their twilight years to be more golden then turnip-y.

So they want to file bankruptcy even though everything they own is on the list of exempt property in Arizona.

And I sure don't blame them.

Note: another version of judgment-proof is somebody whose only debt is barred by the relevant statute of limitations. On the other hand, the statute of limitations provides a defense, not a discharge. So a creditor can still sue on a debt otherwise barred by the statute of limitations, and can get a judgment if the debtor does not raise that defense in a lawsuit.

Also bear in mind that any tiny payment, and any assertion that the debt is actually a legit debt that you may pay, may restart the statute of limitations; it's actually a sort of post-graduate defense, and you may well have goofed it up when you briefly had a job and sent in a tiny payment, or when the collector (your new best friend in the whoooooooole world!) told you that he could see on his computer screen that you were going to be served with process tomorrow, but he could stop that if you sent him five post-dated checks.

By the way, don't send the collector five post-dated checks! He'll deposit them all the same day they are received, and his tag-team collector will threaten you with hot check penalties and prosecution!

And there are other issues to consider if you believe that you're judgment-proof.

Judgment-proof doesn't mean lawsuit-proof.

When a creditor gets a judgment against you, the creditor obtains new rights; among those is the right to force you to appear in a judgment-debtor's exam and testify under penalty of perjury about your income and assets.

No kidding.

And if you don't show up, depending on the state in which you reside, the judgment creditor can ask the court for a body-attachment order, or some such thing, which will result in you being dragged in by the cops if you're stopped for running a red light.

Yeah, with handcuffs behind your back and everything.

Cops don't want to be bill collectors, by the way, but if you show up with an order in their computer when they run your plates, they can and will drag you in to face the debtor's exam music.

Such an odd world.

And I saw somebody gets dragged off in handcuffs for failure to show up for such an exam, back when I was digging ditches in the hot, hot sun for Pancho Willis, and it left me with a conviction that I'd rather not wear those behind-the-back handcuffs if I could avoid it.

Finally, the laws associated with being judgment-proof are not systematic; if you think you are judgment-proof and you are a turnip, for collection purposes, you may not be, because the entire area of law highly textural, and subject to goofy exceptions.

My memory is that there's a case floating around holding that your social security payment is absolutely, completely, entirely exempt from garnishment by a bill collector with a judgment...unless you deposit it in an account where you have other dough of any kind, in which case it's fair game for garnishment again.

I'll dig it up and post it when I get a Round Tuit, assuming that my memory is correct; and that's an assumption that you might want to take with a pinch of salt.

Or a turnip.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on June 22, 2010 (boomark / email).