Jason Stephens | December 26, 2024 | Personal Injury
Being judgment-proof refers to a situation where an individual’s non-exempt income and assets are so minimal that pursuing a legal claim against them is impractical. Even if you were to win a judgment, the individual lacks the means to satisfy it. Essentially, without assets or sufficient income, they would be unable to pay any awarded compensation.
A common example of a judgment-proof debtor in a personal injury case is an uninsured DUI offender. This concept is often summarized by the old adage, “You can’t squeeze blood from a stone.”
Exempt Income
When attempting to collect a judgment from a debtor, certain types of income are legally protected and cannot be seized. These are referred to as exempt income, which includes various forms of financial support and benefits designed to ensure basic living standards or meet specific needs.
Examples of exempt income include:
- Alimony
- Child support
- College savings plans.
- Life insurance,
- Retirement benefits.
- Social Security or SSDI benefits,
- SSI benefits,
- Workers’ compensation benefits.
- Veterans’ benefits,
- Vocational rehabilitation (VR) benefits.
Additionally, many other forms of government assistance, such as food stamps or public housing subsidies, are also exempt from collection efforts by creditors.
Exempt Assets
Exempt assets refer to property and possessions that creditors are legally prohibited from seizing to satisfy a judgment. These exemptions are designed to protect individuals and families from losing essential items needed for daily life and stability.
Examples of exempt assets include:
- One vehicle per licensed driver in a household.
- Personal Items such as work tools, clothing, necessary household items, pets, and certain other animals.
- Equity in your primary residence–up to 10 acres of urban property or 100 acres of rural property (for an individual) to 200 acres (for an entire family). This exemption is subject to exceptions. Creditors can seize your primary residence to pay mortgage debt, home equity payments, or property tax.
- Up to $50,000 in individual personal property or up to $100,000 per family.
It’s important to avoid selling these exempt assets under pressure from creditors. Converting them to cash could eliminate their protected status, making them vulnerable to seizure.
Non-Exempt Income and Assets
Non-exempt income and assets are items and funds that creditors can legally seize from a judgment debtor to satisfy a debt. Unlike exempt property, these assets are not protected by law and are considered fair game for collection efforts.
Examples of non-exempt income and assets include:
- Additional income, such as rental earnings or business revenue.
- Additional vehicles.
- Cash that did not come from exempt income sources.
- High-value, non-essential household items.
- Investments (not including, for example, retirement mutual funds).
- Jewelry, art, and collectibles that are not family heirlooms or trade tools.
- Real estate, other than the debtor’s primary residence.
Creditors generally prefer to seize cash over physical property, as cash is easier to collect and does not require conversion or sale. However, non-cash assets may still be targeted if sufficient cash is unavailable to satisfy the judgment.
Fraudulent Transfer
Suppose you sue a defendant over a personal injury claim, and they respond by immediately “gifting” their non-exempt property to their sister. A court will almost always see something like this as a fraudulent transfer. The court has the power to reverse the transaction and transfer the money to you.
The Texas Statute of Limitations and Judgment Process
In Texas, you generally have two years from the date of an accident to file a personal injury claim or settle the case. Once this deadline expires, you can no longer pursue a claim, rendering it essentially worthless.
If you file a lawsuit against a defendant who is judgment-proof, they may not appear in court, resulting in a default judgment in your favor. However, if the defendant lacks the financial means to pay, this judgment won’t be effective in securing compensation.
In Texas, a court judgment can be renewed every 10 years under the Texas Civil Practice and Remedies Code (Section 34.001), allowing you to maintain the ability to collect if the defendant’s financial situation improves.
Additional Defendants and the “Deep-Pockets” Theory
If the at-fault party cannot pay your claim, you can seek additional defendants who might be able to pay your claim or at least part of it. Prime candidates for additional defendants include:
- Insurance companies: You can sometimes sue the at-fault party’s insurance company directly, known as a third-party claim.
- Employers: If the defendant was acting within the scope of employment when the injury occurred.
- Vehicle owners: If the driver lacks sufficient insurance, you may be able to claim against the vehicle owner (unless the driver was using the vehicle without permission).
- Bars or restaurants: You can sue for serving alcohol to a minor or someone already intoxicated.
Exploring these additional defendants can help you secure compensation if the at-fault party cannot cover your claim.
Stephens Law Firm, PLLC Stands Ready to Fight for You
Stephens Law Firm, PLLC, based in the Dallas-Fort Worth area, has been serving personal injury victims and their families for over 25 years. During this time, we have secured more than $200 million in compensation for our clients. With our contingency fee arrangement, you don’t pay any attorney’s fees unless we win your case. Contact us today to schedule a free, no-obligation consultation.
Contact Our Personal Injury Law Firm in Fort Worth, TX
If you’ve been injured in an accident in Fort Worth and need legal help, contact our Fort Worth and Weatherford personal injury lawyers at Stephens Law Personal Injury | Wrongful Death | Truck Accidents to schedule a free consultation.
Stephens Law Personal Injury | Wrongful Death | Truck Accidents
1300 S University Dr # 406
Fort Worth, TX 76107
(817) 420-7000
Stephens Law Personal Injury | Wrongful Death | Truck Accidents – Weatherford Office
109 York Ave Suite #201
Weatherford, TX 76086
(817) 409-7000