One of the most misunderstood aspects of the debt collection process comes into play after a judgment is awarded and the creditor looks to collect some form of compensation on the amount owed.
Despite what many cartoons and TV sitcoms would lead you to believe, the creditor cannot simply clean out the debtors home of anything valuable. There are a number of items that are considered exempt from debt collection judgments.
If you have recently won a judgment against a debtor, knowing the difference between what you are entitled to take as compensation and what you must leave alone can be the difference between a smooth collection and further courtroom appearances. While the debtor now officially owes you the amount awarded in the judgment, they still have rights to certain property, income, and benefits that you simply cannot touch.
After enduring the long process of chasing a debtor and obtaining a judgment, it is understandable if you would like to walk into that person’s home and simply start grabbing up anything of value. However, debt collection laws in most states forbid you from taking certain personal property items.
In most states, even with a judgment in hand, collectors are not permitted to confiscate any household goods such as furniture or appliances. They are also forbidden from taking clothing items or any medical equipment.
Many states also exempt jewelry, art, and work tools up to a certain amount. The debtor may also be entitled to keep up to a certain amount of their cash on hand. Some states even make one television, one radio, one computer, and one cell phone, and a vehicle under a certain value exempt.
The most common way for a collector to obtain payment for a judgment is through a wage garnishment. However, there are some exemptions that will need to be followed in this case as well. Many states will make bank account balances under a certain amount exempt from collections, and that number is usually even higher if the account contains directly deposited benefits that are exempt.
When it comes to actual wages earned by the debtor, there is only a certain portion of those wages that is permitted to be available for collections. Those percentages are usually calculated based on either the gross or take-home amount. Lower wages generally result in great percentages of the income that remains exempt.
Benefits and Retirement Accounts
Another asset that debt collectors are not permitted to have access to is just about any type of assistance or support from the government. You cannot garnish Social Security, Social Security Disability, Supplemental Security Income, or any Veterans Benefits. Most states also make child support, workers compensation, and unemployment income exempt from collections.
If the debtor has a substantial retirement savings, that may also be exempt depending on the laws in your particular state. Most pensions, 401ks, and IRAs are exempt from collections.
The reason behind many of these exemptions is to make sure that the debtor retains the means to stay current with their existing bills while working towards paying the amount that you were awarded by the judgment. However, many debtors will use these types of exemptions in order to avoid making payments, so you will want to be aware of exactly how these types of exemptions work in your state!