Judgment Proof – Information and Sample Letter

AIDS Legal Services Project

What does it Mean to be Judgment Proof?

Judgment proof is when your property is “exempt” from collection - it cannot be garnished or otherwise taken by your creditors to pay a court judgment.  Generally, you are considered judgment proof if you receive government benefits like SSI, SSDI, State Disability, or welfare, have limited personal property and own no real estate or have limited equity in such property.
However, if you owe money to the federal government, such as from a US backed student loan or federal income taxes, the government CAN and will garnish your Social Security benefits.

It is important to understand that being judgment proof does not erase or eliminate the debt.  You still owe the money even if you can’t pay it.  In fact, once you inform your creditor that you are judgment proof and can’t pay what you owe, the creditor may turn around and sell the debt to a collection agency and you will probably have to notify the collection agency you are judgment proof as well.  In other words, the debt doesn’t just disappear, but it is unlikely the creditor can ever collect on it.

In addition, be aware that you cannot keep using this creditor and obtaining new debt since you are telling the creditor that you cannot pay what you already owe.  So, if you need to use a credit card to charge necessities such as food, do NOT send the creditor a judgment proof letter.  Try other tactics such as reducing expenses and negotiating lower interest rates and pay the minimum amount due on time, so you don’t pick up penalty costs too.

If you are receiving disability benefits, sending your creditors a “judgment proof” letter can be an effective way to get them to stop their collection efforts.  It can also keep them from suing you in court for the amount owed but this isn’t always the case. Creditors have been known to sue SSI recipients for just a few thousand dollars. 

Before you send a judgment proof letter, it would be a good idea to speak to an attorney first.  Remember the ALSP is here to help. Click link to view the Intake Form

Elements of a Judgment Proof Letter -

  • The sample at the end of this section can be used as a guide to draft your own letter.
  • Make sure your name, address, account number and the date appear on your letter.
  • Make sure you state you are exercising your rights under the Fair Debt Collection Practices Act.
  • Include a sentence or two describing why you are judgment-proof – For example:  “I am judgment proof because I am living only on Social Security benefits, own limited exempt property, and cannot meet current expenses.”
  • Mail your letter to the correct address.  THIS IS OFTEN DIFFERENT THAN THE ADDRESS YOU MAIL YOUR PAYMENTS TO.  The address for ‘correspondence’ is likely in very small print on the back of your monthly statement.
  • Keep a copy of each letter you send for your files.
  • Be patient. It can take a few weeks or months for your letter to be processed and for telephone calls from your creditors to stop.
  • BE AWARE THAT THE CREDITOR MAY SELL THE DEBT TO A COLLECTION AGENCY.   Which means the collection agency may start calling or writing to you.  Remember, being judgment proof does not discharge your debts.  Only filing for bankruptcy will do that.  It means that your assets and income cannot be garnished or collected, even if the creditor gets a court judgment.  The above process will need to be repeated for the collection agency.

Informing your creditors that you cannot pay your debts will likely impact your credit rating and can make it difficult to rent an apartment or secure a loan.

Additional resources:

The Federal Trade Commission has a lot of good general information - http://www.ftc.gov/

Sample Judgment Proof Letter

[Name and Address of Collection Agency or Creditor]
Re: [Your Name and Account Number]

Dear [Name of Collection Agency or Creditor]

This letter is to advise you that due to my serious medical problems and my inability to continue regular employment, I am unable to continue to make payments on my account. I have been diagnosed with a serious chronic illness and cannot work sufficient hours (or at all) to meet my current expenses [State your reduced hours and/or sources of income such as SSI, disability or General Assistance].

I am familiar with California law and know that I am “judgment proof.” If I file for bankruptcy, I will claim all my limited property as exempt. If you sue me and obtain a judgment, you will not be legally allowed to collect on any of my income or property to satisfy the judgment.

Please cease all collection activities you have taken or are considering taking against me. While I will provide you with reasonable financial or medical information, I must avoid stress as it greatly impacts my health. This includes high-pressure collection activity and lawsuits.

If my current situation improves and I am able to resume payments, I will tell you. In the meantime, please cancel my credit privileges.

Thank you for your assistance and understanding.

[Your name and address]

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