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How can I stop creditors from taking my money and things?

 

A judge’s final decision in a case is a judgment. If you lose a court case and the judge decides you must pay the creditor, a judgment will be “entered” against you. When a judgment has been entered against you, creditors can take some of your income or your “assets” to pay back the money you owe. Assets are things you own, like a bank account, a car, or jewelry.  But, you can keep some of your income and assets safe from most creditors. The word for the income and assets you are allowed to keep is “exempt”.

Important

For some kinds of debt - like child support, taxes, alimony, or criminal fines - none of your income or assets is exempt.

Exempt or protected income

There are three types of protected income:

  1. Completely protected-some kinds of income, like SSI or welfare, is completely exempt, none of it can be garnished, or taken.
  2. Protected up-to a certain amount- a certain amount of any other income is protected from creditors. You are allowed to keep a certain amount for yourself and your most basic needs.
  3. Special purpose protection- money that you have set aside for some special reasons like rent, or utilities is exempt.

None of your income is protected from money you owe for alimony, child support, criminal fines or the government taxes. 

1) Income that is completely protected from creditors

Some kinds of income are protected from nearly all creditors. This income is also called “exempt”. Debt collectors and creditors cannot take protected income to repay your debt.

Your income is not exempt from paying debts like alimony, child support, criminal fines or money you owe the government.

The creditor cannot take any money from these sources of income:

  • Federal old-age, survivors and disability payments  42 U.S.C., § 407
  • Supplementary Security Income (SSI) for the Aged, blind and disabled 41 U.S.C. s. 1383 (d)(1)
  • Other social security benefits up to $400 a week. 42 U.S.C. s.401
  • Unemployment Compensation M.G.L. c. 151A, s.36
  • Workers Compensation M.G.L. c.152, s.47*
  • Welfare benefits
    •  Emergency Aid for Elderly and Disabled (EAEDC) M.G.L. c. 175, s 110A
    • Transitional Aid for Families with Dependent Children benefits (TAFDC) M.G.L. c. 118, s.10
    • Maternal Child Health Services Block Grant benefits 42 U.S.C. s. 701
    • Other public assistance benefits M.G.L. c. 235, s.34, fifteenth
  • Veterans Benefits 38 U.S.C., § 3100 & (both state and federal) M.G.L. c. 224, § 16
    • Federal veterans benefits 38 U.S.C. s. 5301(a)
    • Special benefits for certain WWII veterans 42 U.S.C. s. 1001
    • Medal of Honor veterans benefits 38 U.S.C. s.1001
    • State Veterans benefits M.G.L. c. 115, s5
  • Public Employees' Pensions M.G.L. c. 32, §§ 19, 41; M.G.L. c. 246, s. 28,
  • Pension, Annuity, profit-sharing or other retirement plans
    • subject to the Employee Retirement Income Security Act (ERISA) or
    • maintained by an employer under 401(k), 403(b), or
    • maintained by an individual as an Individual Retirement Accounts (IRA) M.G.L. c. 235, § 34A
  • Railroad Retirement 45 U.S.C., § 231m

* This income is subject in certain circumstances to claims for reimbursement by Veterans Administration and Department of Transitional Assistance.

2) A portion of earned income is protected from creditors

The money you earn from a job is protected from creditors if it is less than a certain amount. If your income is low enough, everything you earn may be protected from creditors. If your income is higher than the level listed, then you have the right to keep everything that is below the protected level. Your creditors can take the amount that is more than the protected cut-off amount.

Federal and state laws protect different amounts of money. Use the law that protects the most money and stops a creditor from taking anything more than the law allows. 

Federal law:

  • If you are employed, you can keep the highest amount of either:
    • $217.5 each week after taxes or,
    • 75% of your wages after taxes

Massachusetts law:

  • If you are employed you can keep either:
    • the first 85% of your earned income before taxes, or
    • the amount that is 50 times the minimum wage. In June 2011, the Massachusetts minimum wage is $8.00 per hour so the amount protected is $400 per week.

Use the larger of the federal or state minimum wage.  Figure out which protects more money for you and use that amount when you go to court.

Remember

For certain debts none of your income is exempt.  Alimony, child support and maintenance, criminal fines and money you owe to the government can be taken from protected income.

3) Exempt or protected money for specific purposes

You can keep more of the money you earn if you set it aside to pay certain expenses.  If you can show you have saved money for a certain purpose, you can keep this money plus the amount that is already protected. 

If you go back to court for a supplemental process case, look carefully at the list of exemption purposes. Write down how much you spend on each of these expenses. Tell the judge, “The amount I spend for each of these expenses should be exempt in addition to my other exempt income.” 

For example:

  • Meg earns $600 per week.
  • Meg can protect $510 of her income from garnishment since the first 85% is protected under Massachusetts law.  This means $90 goes to the creditor.
  • However, Meg pays $200 per month for heat for herself and her family.  There are 4.3 weeks in a month.  $200 divided by 4.3= $46.51 per week
  • Meg is able to reduce the $90 the creditor can garnish by $46.51 leaving $43.49 for the creditor.
  • However, Meg also pays $500 per month for rent. There are 4.3 weeks in a month.  $500 divided by 4.3= $116.28 per week.
  • Meg is able to reduce the $43.49 the creditor can garnish by $116.28 ($43.49- $116.28= >0) leaving nothing for the creditor.
  • The court will not order any money be taken from Meg’s pay check to pay the creditor if Meg presents the information about her expenses with bills to the Judge.

Bring proof to court showing that you need

    money to pay for the expenses below.

Your rent receipts, food receipts or utility

                  bills are all proof.

Protected amount per month for a certain purpose - exemption purposes

Money for utilities $500
Provisions for family $600
Rent money $2,500
Cash or savings $2,500

Exempt or protected items and assets

After a creditor gets a judgment against you, they can have some of your stuff sold to pay off the debt you owe.  Some property is so important for you to live that creditors cannot take it. Usually, creditors are only interested in your personal belongings if you have something that is worth a lot of money.

The law protects many items up to a certain amount of money.  If an item is worth less than the protected amount, the creditor cannot take the item to satisfy the debt.  However, if the item’s value is higher, then any amount above that value is at risk of creditors taking the item to satisfy your debt.  You would be given the amount of the exemption amount in cash.

Example

Carol has a car worth $10,000.  She does not have a car loan. A creditor took her to court and got a judgment against her for $4,000.  The creditor could take the car, sell it for $10,000 and give Carol $7,500, her exemption amount. The creditor would be able to keep $2,500 to go towards paying off her debt. Carol would no longer have a car but she could use the $7,500 to buy a new one.

Items exempt from collection

Item Current exemption
Furniture $15,000
Books $500
Tools $5,000
Stock in trade $5,000
Fishing equipment $1,500
Sewing machine $300
One computer & one TV no stated dollar limit
Cash or savings (execution) $2,500 on any day
Automobile $7,500 wholesale, $15,000 for disabled or elderly
Personal property $1,000 to $6,000
Jewelry $2,500
Bank account (trustee process) $2,500

Your house is also protected, up to a certain amount

If you own your home, Massachusetts homestead law may protect your home against the claims of many creditors. The law is M.G.L. c. 188.The homestead law only protects your home if:

  1. You live in the house or plan to live in the house.
  2. You use it or plan to use it as your “primary” residence – where you live most of the time.
  3. Manufactured or mobile homes are also protected by this law.

The homestead law does not protect the house from “secured” claims. If you promised to give your house to the lender if you do not pay your loan, your loan is secured. Mortgages are secured claims. If you do not pay your mortgage, homestead protection cannot stop the bank from foreclosing on your home.

See Homestead Protection.


Produced by Mariah Jennings-Rampsi, South Coastal Counties Legal Services, with funding from American College of Bankruptcy Foundation
Created June 2012


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