DEFINITION of Collection-Proof

Collection proof is a term to describe a person that has no income or assets that can legally be seized for debt repayment. In essence, the debtor doesn’t have any assets that a creditor can collect after a court orders the debtor to pay. A creditor who obtains a judgment can attempt to garnish a debtor’s wages, levy her bank account, seize her vehicle, or place a lien against her real estate, but none of these efforts will succeed if the debtor is collection proof and doesn't have these assets or income.

BREAKING DOWN Collection-Proof

Collection proof describes a situation where a person's assets or income cannot be seized by a credit for debt repayment. Certain types of income are collection proof. These include income from Social Security and Social Security Disability, veteran’s benefits, unemployment compensation, worker’s compensation, child support, and welfare payments. A certain amount of money from these protected sources that a debtor already has in a bank account at the time of the judgment is also protected under certain conditions. In addition, if the debtor’s wages are too low, they cannot be garnished at all. For example, in California, a debtor with $1,560 in monthly disposable earnings is protected from wage garnishment as of 2014.

Certain assets may also be collection proof, depending on the debtor’s state of residence and type of debt. For example, a primary residence, up to a certain value, often cannot be seized and sold to repay a debt. Vehicles may be protected, as well as a limited amount of personal property, business property and household goods. The rules regarding what income and assets are protected contain numerous complexities that can make a seemingly protected item collectible, however. An attorney or a consumer advocacy group can help collection-proof debtors decipher the rules and how they apply to their unique circumstances.

The length of time a judgment is valid varies by state. In Nevada, for example, it is six years. The judgment won’t necessarily go away at the end of that period as the creditor may try to renew it. 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 amount owed. As soon as the debtor’s financial situation improves, the creditor may be able to start collecting, and the amount owed may continue to accrue interest for as long as it remains unpaid.