I lent money to a guy to help him buy a car so he could get to work and keep his job. Sure enough, he drives the car but will not pay me back. We had an agreement in writing and signed by both of us that allows me to garnish his wages if he fails to pay me back. He claims to be judgement-proof. Now how do I get my money?
David G.
Often a loan to a friend backfires and you have to work to get your money back. You will have to sue him in court, win that case and then get a money judgement against him in order to collect your money, if he has any. Usually the effort it takes to get your money back will dissuade you from loaning money in the future.
He says he is judgement-proof, which means he is flat broke with no money or assets, but to a court of law judgement-proof means he has no assets you can get to for his debt. This means he may have assets but they are protected from creditors, like you, because they are exempt assets in his state. There are usually two kinds of exemptions from collections; (1) exemptions from wage or income garnishment and (2) exemptions from having property seized and sold to be used to pay the debt.
Garnishment is the taking of his salary/income and must be ordered by a judge. That order forces his employer to withhold from his check a specified amount out of each check until the total garnishment is paid in full. The federal government limits the amount of garnishment so it does not exceed the lesser of 25% of the check or if the amount the employee’s disposable earning are greater than thirty times the current federal minimum wage. When it comes to garnishment, the states may not exceed the federal limits but may increase the exemptions so less is removed from each check.
There are several types of money or income other than wages that are exempt from garnishment. Social Security income, social security disability income, social security retirement benefits, state public assistance, disability benefits, unemployment insurance and even child support, to name a few, are exempt from garnishment. If these types of money are put into a bank account they are protected up to the state balance for exemptions, but anything over that amount can be garnished. Personal property exemptions vary greatly by state up to defined limits. Retirement accounts are usually exempt from garnishment.
Real property exemptions also vary by state but each state tries to protect the home with a homestead exemption. Real property owned jointly is usually exempt from any collections if only one owner is the debtor, otherwise it would be taking property from someone who owes no money and states don’t do that.
Of course it is up to him to prove he is judgment-proof and cannot pay you. Once you have a court ordered judgement against him you can make him prove it by filing for a creditor’s examination. In court, under oath, he will have to provide evidence of his income, assets and debts. One you have a true picture of his ability to pay you can either write off his debt, negotiate with him a smaller amount he can pay or use his information and try to collect your full debt.
Keep in mind his job or income can change in the future. He could win the lottery, get an inheritance, get out of school or even just get a better paying job that will change all your thinking. Your court judgment will allow you to keep an eye on him in the future and when he has more money you can go after it.
Another thing is a court judgement will show on his credit report causing him credit problems. Credit problems stay on your credit report for up to ten (10) years. If he gets more money he may come to you to pay off his debt so you will remove the judgement from his credit report.
You should consider whether it is worth your time and money to pursue this debt collection. You should take off your ‘it’s the principle of the thing’ hat and put on your business hat to really decide if it will cost more than you can get back.
Best thing is: You will not loan money to people in the future after this mess.