Collection-Proof: Meaning, Example, Protected Income & Assets

What Is Collection-Proof?

"Collection-proof" is a term used to describe a person who has no income or assets that can legally be seized for the repayment of certain debts. In essence, the debtor doesn't have anything of value that a creditor can collect after a court orders the debtor to pay. Under normal circumstances, a creditor who obtains a court judgment can attempt to garnish a debtor's wages, levy their bank account, seize their vehicles, or place a lien against their real estate, but none of these efforts will succeed if the debtor is collection-proof. This situation is also referred to as "judgment-proof" or "execution proof."

Understanding Collection-Proof

Certain types of income or assets are collection-proof under the law, meaning that they generally cannot be seized by a creditor or collection agency to repay an unsecured debt. Here are some examples.

Income That Can Be Collection-Proof

Many common types of federal benefits are collection-proof, except when the debt involves delinquent taxes, child or spousal support, or student loans. That includes income from Social Security and Social Security Disability, as well as veteran's benefits. Some state benefits may also be collection-proof, although the law varies from state to state. In many states, for example, unemployment and TANF (Temporary Assistance for Needy Families) benefits are off-limits to debt collectors.

A certain amount of money from these protected sources that a debtor has already deposited in a bank account at the time of the court judgment is also protected in some circumstances.

If the debtor has a job, their work income may be subject to wage garnishment, which requires their employer to hold back a percentage of their earnings to repay their debtors. However, if the debtor's wages are too low, they may not be subject to garnishment at all. For example, in California, a person with $2,686.66 in monthly disposable earnings, who lives in an area where the minimum wage is $15.50 an hour, is protected from wage garnishment as of 2023. Disposable earnings refers to what's left in the employee's pay after any mandatory deductions have been taken out.

Assets That Can Be Collection-Proof

Depending on the debtor's state of residence and the type of debt, certain assets may also be collection-proof. For example, a primary residence, up to a certain value, often cannot be seized and sold to repay a debt, except if the residence was used to secure that debt. Vehicles may be protected, again up to certain limits, as well as a state-defined amount of personal property, business property, and household goods.

How Long Collection-Proof Lasts

The length of time that a court judgment remains valid varies from state to state. In California, for example, it is 10 years. After that point, the creditor can no longer attempt to garnish the debtor's wages or seize their property.

However, many states allow creditors to renew or "revive" the court judgment, effectively restarting the clock.

In other words, being collection-proof at the time a judgment is handed down does not mean a debtor will never have to repay the money they owe. As soon as the debtor's financial situation improves (if it ever does), the creditor may be able to start collecting, and the debt may continue to accrue interest for as long as it remains unpaid.

Example of Collection-Proof

Mark works in a job that barely pays him above the minimum wage. One day he is diagnosed with a serious illness. Luckily, it is still in its early stages. Since he does not have health insurance, Mark uses his credit card to pay his medical bills. In the process, he runs up a huge credit card debt, which the credit card company eventually turns over to a collection agency. When the agency comes calling for payments, Mark is unable to pay off the debt.

The collection agency sues Mark and obtains a court judgment against him. But because he is considered collection-proof, it is unable to recoup anything at that point. However, if Mark's financial situation later changes for the better, the collection agency may attempt to collect on the court judgment.

The Bottom Line

The rules regarding the kinds of income and assets that qualify as "collection-proof" can be complex, and seemingly protected items may be collectible under certain circumstances. A legal aid attorney or a consumer advocacy group can help collection-proof debtors decipher their state's rules and know how they apply in their particular circumstances. It's also worth bearing in mind that being collection-proof isn't always permanent, and some debts never go away.