I have said in this space before, and it has been said many times elsewhere, that someone getting a judgment against you is a bad thing.
When a creditor has a judgment, they gain certain powers over you, powers granted by state and federal law. The two main powers gained are (in many instances) a lien on your real estate and the ability to execute on your personal property.
While these things are generally true, most people only see these powers exercised in two main ways: wage garnishment and bank account execution. The law is not limited to these two items, and it is within the ability of a creditor to execute and sell your furniture and TVs, or even force a foreclosure sale on your house. So why don’t judgment creditors do that?
The answer lies in property exemptions.
Each state and the federal government has crafted statutes that allow a person to protect (exempt) certain amounts of value in certain types of property. The types of property and structure of the protection differs by state, but every legislature and some state constitutions have determined that a person is entitled to a certain minimum amount of property that is theirs above the claims of all creditors. This is your state-granted nest egg, in a way.
Being in the Kansas City area, we have the opportunity to see two very different exemptions schemes in our two local states. Missouri has a more “eastern” exemption scheme, while Kansas’ exemptions have a more “western” tilt. Missouri sets, for most property that regular consumers would own, dollar limits on how much property can be owned of a certain type ($3,000 for automobiles, for example). Kansas tends to protect a broad category of property, regardless of dollar amount (or setting a higher limit). A homestead in Kansas is protected regardless of value (so long as it sits on less than an acre), while Missouri allows a $15,000 exemption in your homestead’s equity. This, in part, explains the existence of Mission Hills.
For most people, and in this current real estate climate, there is little property that has a value over and above the exemption amounts. In order to get some money from executing on a person’s household goods in Missouri, a creditor would have to sell more than $3,000 in furniture and electronics before they could keep any money. Having held numerous garage sales, I can tell you that is a near impossibility for most families. Your old couch just isn’t worth much money.
Your wages and liquid assets, however, have much less robust protection. Both Missouri and Kansas limit the protection of your wages to 75 percent of your net income (90 percent if a Missouri head of household). Kansas offers no protection for most cash in a bank account, and Missouri’s is somewhat limited. Given the limited nature of the exemptions, and the ease of dealing with money over tangible personal property, it becomes clear why creditors concentrate their post-judgment collection efforts on wage garnishments and bank account executions.
So what can you do to best protect your most vulnerable property?
The first and most useless answer is to not allow a judgment be taken against you if possible.
If you are sued on a debt, consult an attorney immediately to determine your rights. If a creditor has taken a judgment and is now attempting to garnish wages or bank accounts, call an attorney to determine what you can do to best protect yourself. You may be able to reduce the garnishment amounts to a livable amount, or in the rare case avoid the impact of the garnishment altogether.
Property exemptions can also help you plan where to put your money.
In most jurisdictions, 401(k) and other retirement accounts are protected from creditor attack. Many life insurance policies are also protected to a large cash value.
In Kansas, home equity is generally protected (though there are limits even there). If you have the ability to save some money, security against future creditors is a factor you should consider when making investment decisions.
With a bit of understanding of the structure of property exemption law, you can take steps to best protect your assets, whether before or after a creditor tries to attack them.
Talk to an experienced legal professional if you have questions about your rights.
Jason Norbury is an attorney in Lee’s Summit who specializes in bankruptcy.
