Income and Assets Protected from Creditors
There are laws that protect certain income and assets from debt collectors. This is sometimes known as being “Collection Proof” or "Judgment Proof." This means that although you still owe a debt, your creditor has no legal way to collect that debt or enforce a court judgment against you.
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Being “Judgment Proof” does not mean that a creditor cannot obtain a judgment against you. Creditors may still obtain and attempt to enforce a judgment against you by asking the court to garnish your wages, levy your bank account, or summon you to court so that the creditor can ask you questions about your income and assets (called a “debtor’s examination”). For these reasons, it is important to know what income and assets are protected from creditors.
Being "Collection Proof" is not permanent. You are "collection proof" only as long as your financial condition stays the same or gets worse. If your financial condition improves, creditors who have a judgment against you may be able to collect money from you in the future (when you are no longer "collection proof").
Income that is protected from "garnishment" (legally deducted from your check as the result of a court judgment against you) includes:
- Public Assistance Benefits (TCA, TDAP) (Md. Code, Human Services § 5-407(a))
- Workers Compensation (Md. Code, Labor and Employment § 9-732; U.S. Code, Title 5 § 8130)
- Supplemental Security Income (“SSI”) (U.S. Code, Title 42 §1383(a)(2)(B))
- Social Security Benefits* (U.S. Code, Title 42 §§ 407, 659)
- State Police Pensions (Md. Code, State Personnel and Pensions § 21-502)*
- Life Insurance or Annuity Proceeds (Md. Code, Insurance § 16-111)
- Unemployment Insurance Benefits * (Md. Code, Labor and Employment § 8-106)
- Veterans Benefits* (U.S. Code, Title 38 § 5301)
- Retirement Benefits (most public and private pensions)*
*Note that child support or alimony may be taken from State Police Pensions, Unemployment Benefits, Social Security Benefits, and Veteran Benefits.
The law allows you to keep the following safe from creditors:
- Up to $6,000 in cash or property of any kind (you must notify the court within 30 days from the date of attachment or levy by a sheriff).
- Up to $5,000 worth of items necessary for the practice of any trade or profession (for example, tools, instruments, books, clothing/uniforms).
- Up to $1,000 in household furnishings, goods, clothing, appliances, books, pets and other personal items
- Money payable to you as the result of court judgments, insurance benefits, child support, and compensation because of sickness, accident, injury or death
- Professionally prescribed health aids
- Your share in a retirement plan qualified under federal tax law (to find out if a retirement plan is a “qualified plan” you should contact the retirement plan administrator).
These exemptions are important when a creditor takes you to court to enforce a judgment against you. These exemptions will not keep your creditor from recovering collateral on a loan. For example, house or car loans are "secured debts" which means that the creditor can legally seize them if you fall behind in your payments. These exemptions are important if you did not put up collateral (such as a house or a car) for a loan. The creditor must go to court and get a judgment against you showing you owe the debt. The creditor must then also go to court to get legal permission to take your property to repay your debt. This is when the exemptions apply.
Read the law: Md. Code, Courts and Judicial Proceedings § 11-504