Being Judgment Proof and Filing Bankruptcy

judgment proof and filing bankruptcyWhen dealing with financial troubles, you will run through multiple scenarios that will help you get a fresh start. The bankruptcy filing is one of the common possibilities that Arizona residents consider. In some situations, however, bankruptcy filing is not going to make a lot of sense. Being judgment-proof creates such conditions.

Being Judgment-Proof: A Definition

When you are judgment-proof, you are protected against collection efforts on behalf of creditors.

This typically occurs for individuals whose only income is derived from Social Security. A second common condition that will have to be met is for the individual to lack significant amounts of property or assets.

People who are unemployed and who do not possess assets exceeding 150,000 dollars in equity may be considered judgment-proof in Arizona. The same applies to those who have an income below the garnishment level and who do not own property or assets.

Even if you do not satisfy these conditions, it’s still possible for you to be declared judgment-proof. This is typical for people whose assets cannot be pursued by creditors. Even if you own assets or you have a source of income, you may still fall under the judgment-proof category. Talk to a bankruptcy attorney to determine whether you are judgment-proof and hence not really in need of a bankruptcy filing.

In the case of a bankruptcy, assets and personal property not falling under an Arizona bankruptcy exemption will be liquidated for the purpose of paying off debt. If you do not own anything that could be liquidated, however, a bankruptcy filing is not going to make a lot of sense.

Should You Still Consider Bankruptcy?

Now that you understand what it means to be judgment-proof, it’s time to determine whether a bankruptcy filing is going to make sense for you.

In some instances, people may be declared judgment-proof for a short period of time. The fact that you are judgment-proof at the time being doesn’t mean you will always fall under the classification. If you are about to get a new source of income, a bankruptcy filing may still be the best future option for you.

For people who anticipate improvements in their financial situation, a Chapter 7 bankruptcy could make a lot of sense. To be eligible for a Chapter 7 bankruptcy filing, you will have to pass the Arizona means test. If your income at the time being is very low, you will satisfy the criteria and you will get a debt dismissal.

Even if you are judgment-proof, creditors could undertake actions against you for the purpose of collecting money that you owe. While they cannot force you to pay, they can be in contact with you, demanding the late payments. When a bankruptcy is filed, an automatic halt will apply to all debt collection efforts. Creditors will no longer have the right to get in touch with you and to demand a payment.

When a creditor gets a judgment against you, they can initiate wage garnishment or property repossession. In Arizona, a judgment can be collected as long as it is being renewed in court. Each judgment is valid for up to five years. Thus, a short-term judgment-proof status is not going to offer you solid protection over the years.

To sum it up, individuals who expect to be judgment-proof in the long run do not really need to consider a bankruptcy filing. They are protected from debt collection efforts and there’s no property liquidation that can occur. If your judgment-proof status is only temporary, however, chances are that you will face collection measures as soon as the situation changes. In such instances, considering bankruptcy will still be the best way to get peace of mind and to put an end to the incessant collection efforts.  Find out about the automatic bankruptcy stay and how it stops creditors from collecting on judgments.