Do you need to file bankruptcy if you are judgement proof?
Question Details:
My income is from a federal pension and social security. I'm $140k underwater on my home. I also have a 401k/IRA account I draw on for additional income. I've heard I don't need to file bankruptcy even though I can't afford to pay about $60k worth of credit card bills. What does "judgement proof" mean?
If you do not pay a debt, the creditor can obtain a judgment agasint you. Virginina allows a judgment to be dockted as a judgment lien against your home. As you make regular house payments, you will eventually pay down the mortgage and build equity in your home. The judgment will then attach to that equity and you may one day loose your home. You may wish to file bankruptcy today to cut off new judgments and avoid judgment liens that are already in place. The fact that you have to equity gives you options today that you may not have in the future. Lastly, congress keeps changing the bankruptcy code. I cannot guarantee what the bankruptcy code may be in a year or in 10 years.
"Judgment proof" means that a judgment--or a successful lawsuit against you, resulting in a court judgment or order that you pay money--can't actually get anything from you, because you either have no income or assets, or the income or assets you have are protected legally from creditors. For example, creditors cannot garnish social security; they can't garnish a 401k or IRA; I believe federal pensions, too, are immune to garnishment; and if you're underwater on your home, there is no equity for them to take.
(Note one thing: once money is in your bank account, a creditor could get at it--even if the original source was protected, once its been paid out from a protected source, it may be vulnerble. Don't allow too much money to accumulate in bank accounts, regular brokerage accounts, etc., lest you give creditors a target.)
A judgment could potentially be enforced for years to come; if you anticipate coming into money or assets in the future, you may wish to file bankruptcy now, but if you expect all your income and assets to remain as you describe, as a practical matter, creditors may not be able to get anything from you--though personal property (e.g. vehicles, big screen TVs, furniture, etc.) could potentially be taken.
