Last week's article concerned the individual who was unable to pay his credit card bills and was using his social security to pay bills and groceries since, he had not been able to find a job.
Many individuals who worry about debts are, in fact, judgment proof. If someone is unemployed and owns only personal property such as household furnishings, a car with a low market value and a small amount of money in the bank they are probably judgment proof. Same applies if they are receiving social security and social security disability benefits.
There are certain kinds of benefit payments which are exempt from garnishment (judgment proof) under state and federal law. State of Illinois law exempts Social Security benefits, unemployment compensation, public assistance benefits, veterans benefits, disability benefits, illness benefits, unemployment benefits, and certain alimony, support or separate maintenance. Federal law exempts Social Security payments along with Railroad Retirement Act and Veteran's benefits.
What if the benefit payments are deposited in a bank account, are they still exempt? The law says that public benefit payments remain exempt from garnishment procedures even after they are deposited in a bank account.
A federal court has previously ruled that veteran's benefits and social security payments deposited into a savings account retain their exempt status so long as the funds remained subject to the demand of the recipient to be used for his needs and were not converted to a "permanent investment." Needless to say, if you do deposit such benefits into a bank account maintain good records to be able to show a judge that the bank account was established with public benefits.
While the "do nothing" approach may be appropriate for judgment proof individuals it will not get rid of the underlying debts and could lead to severe credit problems. Furthermore, there might be implications in not paying certain creditors. For example, you might consider paying those creditors who are medical care providers in order to not prejudice future access to medical care.
Bankruptcy may be an appropriate option if you are not judgment proof but your debt is massive. Bankruptcy can also allow the reduction of payments on many secured debts. and provide a reasonable time to cure any back due debt on a secured asset allowing a debtor to retain a house, car or furniture that would otherwise be lost.
