If a creditor has already obtained a judgment in court against you, you may be anxious that you will lose vital assets or income to collections. While a creditor can use many tools to collect a debt after getting a judgment, you do have options to protect some essential types of property. For example, you may be able to negotiate with the creditor after the judgment. If you can make a reasonable offer to pay off the debt, you may be able to persuade the creditor that it would be easier to accept the offer than go through the effort of seizing your assets.
In some cases, moreover, a debtor may be on the verge of bankruptcy or may not have a significant income from which the creditor can collect. This may result in the creditor not getting paid even if they set up a garnishment, lien, or other collection method. If you are in this situation, a creditor may be especially willing to listen to an offer of limited repayment.
If you are unable to reach a satisfactory outcome by negotiating with the creditor, you may be able to argue that certain property or income should be exempt from collections efforts. Under state law, a creditor cannot seize certain types of property to collect on a debt. These often include government benefits, unemployment benefits, retirement pensions, basic furniture in a debtor’s home, and clothing. Even if income can be garnished in part, there may be limits on the degree to which it can be garnished.
You can raise the argument that a certain asset or part of an asset is exempt by requesting a claim of exemption hearing. This will involve filing a claim of exemption within a short time window and notifying the creditor and potentially the sheriff of the claim. At the hearing, you will need to show why the property is exempt under state law or why seizing the property would cause a financial hardship because it is necessary to support your family or you.
Even if you lose the initial hearing, you may be able to return to court later in the garnishment process if you have suffered a substantial change in circumstances, making the garnishment a hardship at that point. This might be appropriate if you lose your job, for example, or if you develop a medical condition that results in significant health care expenses.
Limits on Exemptions
There are some limits on the hardship defense to collections efforts for certain types of debts. If the debt relates to an expense involving a necessity of life, such as food, clothing, or shelter, you theoretically will be required to pay back that debt even if it causes a financial hardship. However, you can still request a hearing. You can try to persuade the judge that paying back the debt would prevent you from adequately providing for your family. In other situations, you may not even need to go through the hearing if the creditor decides not to oppose the claim of exemption.