Post Judgment Exemptions & Protections Wisconsin exemptions currently found under Wis. Stat. section 815.18-815.20, are intended to advance the humane purpose of preserving to debtors and their dependents the means of obtaining a livelihood, the enjoyment of property necessary to sustain life and the opportunity to avoid becoming public charges. Wis. Stat 815.18 Post Judgment Exemptions & Protections: Review & Update It s been awhile since we ve reviewed post judgment collection protections and there s been some welcome changes since we last reviewed it due to the passage of Act 80 which increased the exemption levels for property that individuals can keep from execution by judgment creditors; Even in good economic times, many of our clients find themselves in debt (especially credit card and medical debt). This has only gotten worse as the economy has tanked. When Do Post Judgment Protections Apply? When we talk about post judgment protections we re talking about a situation in which a creditor has obtained a court judgment against the consumer, which gives the creditor the legal right to force the consumer to pay, using a variety of methods. The creditor can obtain a default judgment if the consumer/debtor does not challenge or fails to respond to the lawsuit. 1
What does it mean to be collection-proof Collection proof describes a debtor with no wages or assets that can be attached or taken to be sold to satisfy a judgment. Another, less accurate, term for collection proof is judgment proof. Judgment proof is less accurate because a creditor can always file a lawsuit to obtain a judgment without regard to the consumer s financial situation. Whether the creditor can then enforce or collect on the judgment (via garnishment or other forms of execution) is a separate question. Most commonly, a debtor is collection-proof because all of the debtor s wages fall under Wis. Stat. Section 815.18(3)(h), or his/her assets are exempt under state or federal law. Debt is Not Eliminated Being collection-proof does not discharge the debt or absolve the debtor s responsibility for the debt. As the name implies, its not that the debt ceases to exist, its that the judgment creditor is unable to collect the debt from the debtor even with a court judgment following entry of judgment establishing the debtor s liability. The judgment, however, does not go away. The judgment can be docketed and enforced for many years following entry of judgment. A debtor who is judgment proof today may not continue to be judgment proof. Getting At Income: Garnishment A creditor or debt collector with a judgment has the right to garnish money belonging or owed to a debtor that is in the hands of a third party usually wages or bank accounts Garnishment can only occur after the collector obtains a judgment (except collecting on a federal student loan). 2
Getting At Income: Garnishment After judgment is obtained, the creditor files a request for garnishment and then issues notice to the garnishee (employer, bank, or other 3 rd party holding debtor s property) directing the 3 rd party to turn over the money at a specified time. The debtor must be notified of the garnishment and may request a hearing to prove that state or federal law protects the funds from garnishment Exemptions From Garnishment Generally, 80% of debtor s disposable earnings are exempt from garnishment. (Disposable earnings = that part of the debtor s earnings remaining after social security taxes and federal and state income taxes listed on the person s wage statement). Exemptions from Garnishment Debtor s earnings are totally exempt from garnishment if one of the following applies: 1) Debtor s household income is below the poverty line (annual income $10,890/$908 individual 2011; $14,710/$1,226 couple 2011) OR 3
Exemptions from Garnishment 2) Debtor is receiving needs based public assistance or has received needs based public assistance within 6 months prior to service of the earnings garnishment forms upon garnishee or has been determined eligible to receive needs based assistance, although actual receipt of the benefit has not commenced (Needs based public assistance includes Food Share, MA, SSI, county relief programs, TANF, unemployment compensation and veteran s benefits based on need). Exemptions From Garnishment If garnishment of 20% of the debtor s disposable income would result in the debtor s household income falling below the poverty level, the amount of the garnishment is limited to the debtor s household income in excess of the poverty level before the garnishment is in effect. Debt Owed to the U.S. Government Most of the debt our clients have is unsecured consumer debt in the form of credit card debt and medical debt. However some clients owe money to the U.S. government. The distinction is important because there are less protections for income and assets owed to the Federal government. 4
Debt Owed to the U.S. Government For example, while Social Security Retirement and Disability benefits cannot be seized for non-governmental debt, a portion of those benefits can be seized by the U.S. government for debts owed to them (for example student loans, benefit overpayments and taxes). This does NOT apply to SSI or VA benefits. Getting at Assets: Execution Another way for a judgment creditor to satisfy their judgment is by seizing non exempt assets of the debtor. Execution requires a court order. Exemptions from Execution Property exemption laws allow the debtor the right to keep exempt property and protect it from creditors trying to satisfy a debt. Some exemption statutes specify dollar amounts of specific types of property; others totally exempt certain types of property. 5
Homestead Exemption Prior to Act 80 $40,000 Now $75,000 per person; $150,000 per couple The protections apply to the equity in the home. So if the fair market value of the home minus any mortgage is equal to or less than the exemption amount, the creditor cannot place a lien on the home. If the person has equity above the exemption amount, a lien may be placed on the home. Act 80 not only increased the exemption amount but eliminated a provision which specifically stated that a married couple could only exempt $40,000 of the total value of their home, and not $40,000 per individual. This provision had led to some couples divorcing solely to maximize their homestead exemption. Business & Farm Prior to Act $7,500 80 Now $15,000 per person; $30,000 per couple Equipment, inventory, farm products, and professional books used in the business of the debtor or the business of a dependent of the debtor. Consumer Goods Prior to Act 80 Now $5,000 $12,000 per person; $24,000 per couple Household goods, furnishings, wearing apparel, keepsakes, jewelry and other articles of personal adornment, appliances, books, musical instruments, firearms, sporting goods, animals, and other tangible personal property held primarily for the personal, family, or household use of the debtor or dependent of the debtor. 6
Motor Vehicles Prior to Act 80 Now $1,200 $4,000 per person; $8,000 per couple Any unused amount of the aggregate value from the consumer goods category may be added to this exemption to increase the aggregate exempt value of motor vehicles. This means that if the debtor does not use all of the $12,000 exemption allowed for consumer goods, the remaining amount can be used for application to the car exemption. Prior to Act 80 Now Depository Account $1,000 $5,000 per person; $10,000 per couple A depository account means a certificate of deposit, demand, negotiated order of withdrawal, savings, share, time, or like account maintained with a bank, credit union, insurance company, savings bank, savings and loan association, securities broker or dealer, or like organization. It does not include a safe deposit box or property deposited in a safe deposit box. Government Benefits Social Security Retirement and Disability benefits, SSI, Veteran s Benefits (pension, compensation, insurance benefit), disability, illness or unemployment benefits, unemployment compensation, worker compensation and local public assistance benefit are exempt. 7
Retirement Benefits nearly all pensions are exempt: tax exempt retirement accounts; profit sharing plans, IRAs, Roth IRAs, Keogh plans, 401(k), 403 plans, 414 and 457 plans and 501(a) thrift savings plans for federal employees. Our Role If a person comes to us before they have had a judgment entered against them, we can help them identify any potential defenses they might have (for example, they did not incur the debt or too much time has passed between the debt being incurred and the creditor asking to be paid) and evaluate the likelihood of their income and assets being protected under the exemption statutes (i.e. is it likely that the person is "collection proof"). This would be an analysis conducted by the supervising attorney. If it appears that the client has defenses available to them then we can assist in referring them to a private attorney or, in some limited instances, possibly represent them directly. If the person receive a judgment against them (either as a result of a default judgment or otherwise) we can assist them in completing the Financial Disclosure Statement necessary to claim any income and asset protections. This would be completed by you and reviewed by your supervising attorney. 8