Perhaps you have heard or read that property is everything in the drive to collect a money judgment. Creditors often turn to property as a means of encouraging payment or actually covering for the payment itself. But did you know that not all a debtor’s property is up for grabs?
There are certain types of properties most states have made off limits for debt collection. This post will cover some of them. As you read, bear in mind that states differ in what they consider exempt and nonexempt property for purposes of debt collection. The suggestions made below are general and nature. Actual details depend on state law.
Table of Contents
1. A Portion of Wages
First up is a portion of the debtor’s wages. This comes into play when a judgment creditor decides to ask for a writ of garnishment against the debtor. A writ of garnishment is a legal document that compels the debtor’s employer to withhold a certain amount from his paycheck and forward it to the judgment creditor.
A portion of the debtor’s wages is protected in two ways:
- Disposable Income – Most states will only allow judgment creditors to go after disposable income. This is the amount of income the debtor does not require to pay his basic living expenses.
- A Portion of That Income – Even with disposal income, the states usually do not allow creditors to take all of it. They only allow garnishing of a certain portion, usually 25%.
Garnishment is one way to collect an outstanding money judgment. But because of the amount of a debtor’s income protected by law, garnishment is usually a slow and drawn-out process.
2. Primary Residence or Homestead
Most states consider primary residences and homesteads exempt from judgment collection. Vacation homes and rentals are another matter. Also note that primary residences and homesteads might be protected fully or only in part.
- Full – Full protection would mean the entire property, along with all its structures, is exempt from seizure and sale.
- Partial – Partial protection could mean that a residence is off limits, but surrounding acreage is not.
- Value – Some states protect primary residences and homesteads only up to a certain value. This is called a homestead exemption. If a property’s value exceeds the state’s homestead exemption, anything above and beyond that value would not be exempt from collection efforts.
Protecting primary residences and homesteads is a way to prevent creditors from making debtors homeless. It is a reasonable protection.
3. Personal Vehicles
Personal vehicles are also exempt from judgment collection in many states. According to Salt Lake City, Utah’s Judgment Collectors, a personal vehicle is a vehicle that the debtor needs for daily transportation. It would not apply to collector cars, RVs, boats, ATVs, etc.
A few states protect only a certain value of a personal vehicle. In such a case, a vehicle could be seized and sold. Any amount realized from the sale, above and beyond the protected value, goes to the creditor.
4. Tools of a Trade
Tools or equipment a judgment debtor needs to do his job are typically protected against collection efforts. A creditor could not take a carpenter’s truck, trailer, and hand tools. A landscaper couldn’t lose his mowers, trimmers, and blowers.
The many different types of protected assets have one thing in common: they are necessary to maintaining a financially stable life. The states simply will not allow judgment creditors to reduce a debtor’s assets to nothing. A debtor still must be allowed a place to live and the ability to continue providing for himself. Judgment creditors cannot interfere by seizing and selling protected property.