This is the second-to-last of our series of blogs about special legal and practical considerations for older Oregonians. Check out our earlier ones on debt, income, and asset considerations. As before, many of these considerations also apply to younger folks, especially today’s blog.
Special Strategic Considerations—Being “Judgment-Proof”:
If you have creditors you can’t pay, but none of your income can be garnished by creditors and none of your assets can be taken by them either, it might be worth thinking about dealing with your creditors by doing nothing. You may have heard of that possibility. But for most people it is not nearly as sensible of an option as may first sound, for the following reasons:
Income: If you believe that your only sources of income are “exempt,” or protected from garnishment, you need to make sure that’s true by finding out from an experienced attorney. Be aware that whenever you receive income from any other sources in the future—such as if you take a part-time job, or even if you have a friend or family pay you money—those funds may be subject to garnishment.
Social Security: Even your Social Security check, which is protected for most purposes, is more at risk than people realize. A certain amount can be taken from you to pay income tax debts, and more can be taken for any other federal debts, such as student loans. Under Oregon law, the full amount of any ongoing monthly child or spousal support can be taken out of your Social Security check; a certain amount can also be taken to pay back support.
Money in accounts: Even if income you received was exempt, once you put it into your checking or savings account there is a risk that a creditor could reach it. With some types of income there is a cap how much is protected. In some situations, if any money goes into that account from any other sources the entire account may become unprotected. In Oregon, even Social Security and other usually exempt funds can be taken in full to pay a debt you owe to the financial institution where you have your account.
Challenge to garnishment: Even if the money in your account all appears to be protected, if a creditor tries to garnish the account it may still receive a portion of the money. To stop this from happening, you would likely have to file a Challenge to Garnishment, sometimes called Claim of Exemption, go to a court hearing, and have a judge decide if you get to keep your money. In the meantime, your account is frozen so that you can’t withdraw any money or write checks, and any previously written checks will bounce.
Assets: Although your assets may be exempt from seizure at one point, when you acquire any new assets, or pay down debt on a vehicle or your home, your additional assets or increased equity may be exposed. Also, the usual exemptions may not apply to certain creditors. For example, a federal tax lien allows the IRS to seize some of your assets that would be protected from other creditors.
Also be aware that your seeming lack of income to garnish or assets to seize does not mean that your creditors won’t try. So you have to be prepared to tolerate being sued and judgments being entered against you, attempts at garnishment and seizure, and potentially being required to testify under oath in court about your income and assets.
To deal with all this, you first need to get a very thorough analysis of your situation to determine whether you have any immediate exposure. But then as your circumstances and the laws change, you need to periodically have your situation re-analyzed to determine if you are still protected. There is a cost in money, time, and peace of mind stretching out over years that needs to be weighed against the benefit of avoiding all of that by filing bankruptcy.
We finish this series of blogs next time by addressing some other strategic considerations: 1) benefitting your survivors and heirs, 2) attitudes about bankruptcy, and 3) health and life expectancy issues.
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