Assume you’re an individual and are convicted of a fining offense, or alternatively that someone sues you for a huge sum and wins. But you’re just an ordinary middle classer, earning maybe $50K annually. So how does that work? Can the State or the winning plaintiff take EVERYTHING you earn? What would be the point of working at all? How would you live? I recall that in the O.J. Simpson case, when he lost the wrongful death action against him, anything he earned would go to pay the plaintiffs, and he is therefore living on his untouchable NFL pension. But what happens if you’re the losing defendant and you have no such untouchable funds?
When a judgment creditor holds a debt against you, they need to bring a second, separate law suit to enforce or execute the judgment. Once this is done, you must pay them what you can or be held in contempt of court, which can ultimately lead to prison. Each state has its own rules as to how much you can be expected to fork over, but typically a court can order you to sell or turn over most all of your property. Most states have specific exemptions to this – for instance, in most states you can keep your house and some specified amount of money. In Virginia, you’re allowed to keep the family bible. Any property that does not meet one of the state’s exemptions must be turned over in satisfaction of the judgment or sold to pay the judgment.
If that does not meet the full amount of the judgment, most states allow the garnishment of wages. The court or the sheriff sends notice to your employer, who is then obligated by law to take a fixed percentage out of your pay check every week and pay it to the creditor or the court until the judgment is satisfied. Different states have different garnishment procedures, but I think I’ve seen 25% as the maximum to be taken in at least a couple states.
As I noted above, refusing to pay or to turn over property in satistaction can ultimately lead to jail time. Note that this is not analagous to debtors’ prison – you can no longer be held in contempt or sent to prison for failing to pay, only for refusing to pay.
–Cliffy
Thanks Cliffy.
As the legal eagles say, asked and answered. Manhattan, maybe it would be a good idea to close this.
I have been practicing in this area for almost a dozen years. Cliffy’s answer is mostly correct, but let me take exception with a few points:
A creditor holds a debt owed to him or her by a debtor. When the creditor sues the debtor in order to recover the debt owed, the creditor becomes a plaintiff and the debtor becomes the defendant. If the plaintiff prevails on the claim, then the plaintiff becomes the judgment creditor and the defendant becomes the judgment debtor, and the debt is said to be “reduced to judgment”–so that what the judgment creditor holds is a judgment, not merely a debt.
Executing the judgment does not require a separate lawsuit. The judgment authorizes the issuance of new process, usually known as an execution (or an order for execution or writ of execution), which empowers the sheriff (or, in some cases, the judgment creditor or his or her attorney) to seize assets or other property belonging to the judgment debtor in satisfaction of the judgment.
As far as I know, there is no jurisdiction in the United States where an unsatisfied judgment by itself can land the judgment debtor in prison. The judgment invokes the power of the state in aid of executing and satisfying the judgment: basically, it says that the state (usually in the person of the sheriff) may forcibly seize assets from the judgment debtor for that purpose, regardless of the judgment debtor’s consent. A judgment debtor may go to jail for forcibly interfering with an execution, or for spiriting assets out of the jurisdiction, but not for nonpayment.
Most jurisdictions let the judgment creditor levy an execution upon whatever non-exempt assets he or she or the sheriff (who usually relies on the judgment creditor’s information, rather than going out and actively discovering the judgment debtor’s assets) can find, including wages, so that exhausting other assets is not necessary before garnishing wages. (Technically, garnishing wages is a new lawsuit, since it involves assets–the wages–in the hands of a stranger to the lawsuit between the judgment creditor and the judgment debtor. The judgment creditor must typically serve a garnishment summons upon the garnishee, with notice to the judgment creditor, so that they each enjoy an opportunity for asserting any available legal objection to the garnishment.)
I am not sure what the difference is between “failing” and “refusing” to pay but, as I wrote above, usually neither one can get you thrown in jail. You either have the resources for satisfying the judgment, in which case the judgment creditor and the sheriff can take them, with or without your cooperation; or you don’t, in which case you are “judgment proof,” and the law can’t touch you.
If you owe $5million and you can only pay off $10,000, and the only thing you have is your work income, let’s say $30,000 a year (adjusted for inflation for each year but otherwise never rises), what happens?
You pay $10,000 and then pay some maximum percent every year until you die?
[Seems really bizarre considering that Trump can just pay it while some average :wally has to live, and his/her kids, in poverty for the rest of their life.]
Aaach! Zombie!
A good number of large lawsuits against individuals are dismissed by bankruptcies. I assisted a former relative through a chapter 7 bankruptcy a few years ago, almost all of the $90,000 dismissed was the result of a lawsuit. She made an illegal left turn and knocked a delivery van into row of cars at a Nissan dealer. She found the state’s minimun insurance requirements to be woefully inadequate. At the same 341 meeting, a couple was there hoping to have a $3 million judgment dismissed.
Given racer72’s experience, it seems totally bizarre that some average :wally can escape his judgment via bankruptcy, and Trump (in his non-bankrupt years) actually would have to pay the judgement. If some jackass made me incapable of working for the next 20 years, I’d hope to hell his judgement doesn’t get discharged. Let him live in poverty – he’ll have forced me into it.
I guess insurance also plays a role. Does car/hom insurance cover a defedants fees and fines for negligence?
So long as it isn’t more than the value of your policy. If your policy limit is $100k that is what they’ll cover.
As for defendant’s fees, at least here in VA, the insurance company often in house counsel that will defend you if you are sued for something that your insurance covers. In the event that you are sued and they don’t have an in house counsel, they will most likely have a firm on retainer, that will defend you.
An insurance policy can cover the judgement against you, if the policy allows it and the judgement is within the limits of the policy–if your policy carries a $1 million limit and you are successfully sued for $3 million, well, you’re still on the hook for the excess. You can, however, buy “umbrella” liability policies that provide excess coverage in case the limits of your primary policy are exhausted.
I’m unsure how or whether an insurance policy would cover legal representation though.
On preview, I see that brujo has supplied some information on the legal representation question, as well. But it implies that such things may vary by jurisdiction–probably best to check your policy wording and/or with your broker.
Liability coverages normally provide for representation to be provided by the insurer (so they can be sure of a vigorous defense). State Farm paid for some of Bill Clinton’s defense (the chick before Monica, I think) under his Personal Liability Umbrella Policy until it was shown that the terms of the suit were beyond the scope of the policy language.
The cost of the representation is absorbed by the company, allowing the policy limit to apply against the judgement. There are exceptions, but for personal auto & homeowners purposes, this is the norm.
Typically, yes. As long as the negligence results in an *accidental *loss. Intentional acts are not generally covered at all.
Nonpayment itself shouldn’t result in imprisonment, but you can be imprisoned for contempt for court if you’ve been specifically ordered to pay something, or turn over an asset, and you fail to do it (assuming that you’re capable of complying). This might be what Cliffy was referring to when he drew a distinction between failing to pay and refusing to pay.
As for insurance, bear in mind that the premise of the original post was that a middle-class person gets hit with a “huge” judgment. Middle-class people rarely have large insurance policies (for liability, anyway) so insurance will probably not solve the problem.
Both make sense. I guess I’m thinking that insurance would cover, of what it covers, at least some chunk of money that a person might be awarded.
Overall, the answer seems to be that if a large court-ordered award against pushes you into bankruptcy, you don’t have to pay. Does that mean, that if 10 or 20 years after bankruptcy you win a $10million lottery, the person you owed $10 million before bankruptcy is out of luck?
The person is out of luck if the debt was discharged in bankruptcy. Some types of debts, however, can’t be discharged that way; there is a list of (some) non-dischargeable debts here .