I HAVE NO MONEY TO PAY A JUDGMENT. I AM JUDGMENT PROOF. IS IT NECESSARY TO OPPOSE THE LAWSUIT?
The term “judgment proof” is sometimes used to describe a debtor that has no assets, or who only has income or property that is completely exempt under California’s exemption statutes. For example, you may be judgment proof if:
- You have no savings and less than one month’s worth of recent income
- You own a house, but owe more on the mortgage than the house is currently worth, or equity in the house is less than the amount that is exempt under C.C.P. § 704.730.
- Your car is worth $7,500 or less
- Your weekly income is less than $217.50 (30 times the federal minimum wage of $7.25 an hour), or
- Your income is exempt under C.C.P. § 704.080 or § 704.120 (Social Security, disability or unemployment benefits), and the benefits are direct-deposited into your bank account. Benefits cannot be mixed with ordinary income or other money. (Keep in mind that your unemployment benefits will expire, and when you return to work, your income may not be fully exempt.)
Any property you own that is not exempt under a California exemption statute can be seized and sold to pay a judgment, including: a car or truck with a high resale value, a second vehicle, bicycles and other sporting goods, musical instruments, antiques, collectibles, etc.
If you do not own any real estate, do not have savings in the bank, do not own a valuable car, and 100 per cent of your income is exempt, then you are probably judgment proof. However, there are still at least four good reasons to defend a suit filed by a debt buyer.
A debt buyer that has acquired old debt has spent just a fraction of the amount that is being claimed in the complaint, sometimes just a few cents on the dollar. Why should they get a judgment for 100 per cent of the original debt, plus litigation costs and statutory interest? By allowing a default to be taken, you have lost the right to challenge the legal merits of the lawsuit. A judgment is usually not reversible, it’s good for 10 years, and can be renewed when that period expires.
In most cases you must claim exemptions in order to avoid a levy or wage garnishment. Some debtors fail to file the exemption paperwork in time. This could result in a levy or a garnishment of wages, despite the fact that your income or property is technically protected by an exemption. You must be vigilant in order to protect your rights.
You may be judgment proof today, but in the future, your circumstances may change. You may develop new sources of income; you may inherit property, or get married and acquire community property. You may lose money or property if a debt buyer or other creditor gets a judgment, and it remains unpaid.
WOULD IT BE BETTER FOR ME TO FILE A BANKRUPTCY CASE TO GET RID OF THIS DEBT, OR TO OPPOSE THE LAWSUIT?
The answer to this question would be determined by an analysis of your recent income, your current income, your property, and all of your debts. However, if the debt that is the basis of the lawsuit is your only delinquent debt (or one of a few small-dollar-amount debts), and the plaintiff is a debt buyer, opposing the lawsuit may be the best approach.
IS IT POSSIBLE TO SETTLE THE DEBT RATHER THAN SPENDING TIME AND MONEY TO FIGHT THE LAWSUIT?
Yes, it may be possible to negotiate a settlement, for an amount less than the full amount of the creditor’s claim. However, once the debt has become a lawsuit, settlement may become more difficult than if a settlement had been reached prior to the lawsuit. You will have more leverage in a negotiation if you file an answer to the complaint and demonstrate that you are prepared to litigate. Help is available if you want to file an answer as a “pro per” defendant, instead of hiring an attorney to represent you.