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The judgment-proof myth: what cheap limits expose after a crash
Having little money does not make you immune to a judgment above your policy limit. Here is how excess judgments are collected and what the law protects.
Low limits matter even if you own little, because a court judgment is a claim on your future, not only on what you have today. Your insurer pays damages up to the limit; a judgment above it stays your debt, can last for years, can collect interest, and can reach part of your paycheck, your bank balance and, in many states, your license. Some assets and some states are protected, but "judgment-proof" is a bet about the law and your own future, not a legal status you can rely on.
This article walks through how an excess judgment is created, what the main collection tools can and cannot reach, how long a judgment lasts, what bankruptcy does and does not do, and what that means for choosing limits. Collection and exemption rules are mostly state law, so the examples name the state they come from. For your own case, a licensed attorney or your state insurance department is the place for specifics.
What "above the limit" means after a crash
Liability coverage promises to pay what you owe other people when you are legally responsible for a crash, up to the limits on your declarations page. A split limit such as 25/50/25 means $25,000 per injured person, $50,000 per accident for all injuries, and $25,000 for property damage. Our article on what 25/50/25 means: split liability limits explained covers the notation.
Those limits are caps on what the insurer pays for damages. Three things can sit outside them. First, the insurer's cost of defending you is normally paid in addition to the limit; the State Farm Missouri personal auto booklet (form 9825C, copyright 2023), for example, lists attorney fees for lawyers it chooses to defend you as a supplementary payment in addition to the liability limit. Second, that same form says it pays interest on the judgment until it pays or offers its limit into court, and no interest that accrues after that point. Third, anything the court awards beyond the limit is not covered at all. Other insurers' forms word these clauses differently, so read yours.
The part that falls to you is the excess. Our articles on excess judgments: when a verdict is larger than your policy limit and what happens when damages exceed your liability limits describe how it arises; the key point here is that the court enters a judgment against you personally for the full amount, and the insurer's payment reduces it.
A worked example above a 25/50/25 policy
The numbers below are hypothetical, chosen to show the arithmetic; they are not market data. Say you cause a crash that injures two people and damages two cars, and your policy is 25/50/25.
| Item | Damages awarded | Policy pays | Left on you |
|---|---|---|---|
| Driver A, injuries | $140,000 | $25,000 (per-person limit) | $115,000 |
| Passenger B, injuries | $30,000 | $25,000 (per-person limit) | $5,000 |
| Two cars and a fence | $38,000 | $25,000 (property damage limit) | $13,000 |
| Total | $208,000 | $75,000 | $133,000 |
The two injury payments total $50,000, which fits inside the $50,000 per-accident cap. If there had been a third injured person, the $50,000 would have been shared, and the others' awards would be smaller. Now add interest. In California, for example, a money judgment generally accrues interest at 10 percent a year on the unpaid principal under Code of Civil Procedure section 685.010. If that rate applied to this $133,000, interest would add about $13,300 a year, so a judgment you do not pay grows faster than a minimum-wage worker could plausibly pay it down. Rates differ by state, and some states set a lower one.
Realistic injury awards also outrun a $25,000 limit quickly. The Insurance Research Council reported that the average payment on an injury claim rose from about $14,000 in 2017 to more than $20,000 in 2022, and the share of claimants with an attorney rose from about 40 percent to nearly 50 percent. An average is not a worst case: serious injuries, lost income and long treatment push awards much higher, which is why the excess in the table above is a modest scenario.
How the excess is collected
A judgment is a court order that you owe a specific amount. It does not collect itself; the person who won (the judgment creditor) has to use the court's enforcement tools. Which tools exist, and how fast they work, depends on the state. Common ones are:
- Wage garnishment: a court order to your employer to withhold part of each paycheck and send it to the creditor.
- Bank levy: an order to your bank to freeze and turn over money in your account, subject to exemptions.
- Judgment lien: a recorded claim on real estate you own, which can block a sale or refinance until it is paid.
- Debtor's examination: a court hearing where you can be asked under oath about your income, accounts and property.
Our article on Can they take your savings? How accident judgments are collected describes the sequence in more detail. One practical point: a debtor with few assets today is still an attractive target if they have a steady job, because wages are the easiest asset to collect on over time.
Wage garnishment limits under federal and state law
Federal law caps how much of ordinary wages can be taken. The Consumer Credit Protection Act, as explained in the Department of Labor's Fact Sheet #30 (December 2024), limits the weekly garnishment for an ordinary debt to the lesser of two amounts: 25 percent of disposable earnings, or the amount by which disposable earnings exceed 30 times the federal minimum wage. Disposable earnings means pay left after legally required deductions; voluntary deductions such as union dues or health insurance are generally not subtracted. At the $7.25 minimum wage the fact sheet uses, 30 times is $217.50 a week. The statute itself, 15 U.S.C. 1673, states the same two limits and carves out support orders, certain bankruptcy court orders and tax debts.
Here is what that looks like for a weekly paycheck, using the fact sheet's $217.50 threshold:
| Weekly disposable earnings | 25% of earnings | Amount above $217.50 | Most that can be garnished |
|---|---|---|---|
| $217.50 or less | n/a | $0 | $0 |
| $280 | $70.00 | $62.50 | $62.50 |
| $400 | $100.00 | $182.50 | $100.00 |
| $600 | $150.00 | $382.50 | $150.00 |
Three things follow from the table. A low earner keeps most pay but is not untouchable. A garnishment can continue week after week until the judgment and interest are paid. And the federal rule is a ceiling, not a floor: the same fact sheet notes that the Act bars an employer from firing a worker over garnishment for any one debt, which helps a worker keep the job that pays the judgment.
States can set tighter limits. Federal law, in 15 U.S.C. 1677, leaves in place state laws that prohibit garnishment or provide for more limited garnishment than the federal limits. Two examples from state law:
- Texas: Civil Practice and Remedies Code section 63.004 provides that, except as otherwise provided by state or federal law, current wages for personal service are not subject to garnishment. Texas judgment creditors therefore go after other assets.
- Pennsylvania: 42 Pa.C.S. section 8127 makes wages, salaries and commissions exempt from attachment while in the employer's hands, except in listed proceedings: divorce, support, board of four weeks or less, certain residential lease judgments, a state higher-education agency's loans and criminal restitution, fines or bail. As reproduced on Onecle, an ordinary civil judgment from a crash is not on that list.
A wage ban is not a general shield. It addresses wages, not bank balances, property, tax refunds or the license consequences below. And a state with a strong wage rule can still enforce a judgment in other ways.
Which assets are exempt
Every state has exemption laws that protect some property from creditors; the details, including the dollar amounts, differ widely. The table summarizes the kinds of protection that matter most in an auto judgment and where the rule comes from. It is a map, not a guarantee, and the amounts and conditions are the part to check.
| Asset | How it is usually treated | Where the rule lives |
|---|---|---|
| Social Security benefits | Generally protected from garnishment and levy | 42 U.S.C. 407; federal rules require banks to review accounts for benefit deposits before freezing money (31 CFR part 212) |
| Employer retirement plans (401(k), pension) | Protected from assignment under ERISA for qualifying plans | 29 U.S.C. 1056(d) |
| IRAs | Depends on state law outside bankruptcy; capped in bankruptcy | State exemption statutes; 11 U.S.C. 522(n) |
| Home equity | Protection depends on the state, and ranges from small dollar caps to land-size limits | State homestead law |
| Car, tools, household goods | Small exemptions in many states | State exemption statutes |
| Ordinary bank balance | Protected only to the extent a state exemption or the source of the money (such as benefits) says so | State law and federal benefit rules |
A few examples show why the details matter. Texas protects a homestead by size, not value: an urban homestead can be up to 10 acres, a rural family homestead up to 200 acres and a rural single adult's up to 100, under Property Code section 41.002. In bankruptcy, a federal exemption for property used as a residence is $31,575 as adjusted effective April 1, 2025, for states that allow that choice, and the cap on IRA assets in a bankruptcy case is $1,711,975 as adjusted on the same date, both per 11 U.S.C. section 522. The ERISA rule covers qualifying employer plans, but an IRA is not an ERISA plan. For retirement accounts specifically, see our article on protecting retirement savings from an auto liability judgment.
Two cautions. Exempt money loses protection if it is mixed carelessly with other funds or moved into something that is not exempt. And transferring property to a relative after a crash, to keep it from a creditor, can be undone by a court in many states. Anyone considering a transfer should speak to an attorney first, not after the judgment.
How long a judgment lasts, and interest
A judgment is not a one-time event. In California, a money judgment can be enforced for 10 years after entry under Code of Civil Procedure section 683.020, and the creditor can extend that period by renewing the judgment under section 683.110, which bars a renewal application filed within five years of the previous one. Interest at 10 percent a year on the unpaid principal applies under section 685.010, with lower rates for narrower categories such as certain medical-expense and personal-debt judgments. The practical result in California is that a judgment from a crash can follow someone for decades if the creditor keeps renewing it.
Other states set different lifespans, renewal procedures and interest rates, and some make it easier or harder for a creditor to revive an old judgment. The point is not the California numbers; it is that the clock is measured in years, and the debt may grow while the clock runs. Ask a local attorney about your state's period, or look it up on the state court system's website.
Bankruptcy and what it does not erase
Bankruptcy can discharge many ordinary debts, including a judgment based on ordinary negligence, but there are exceptions that matter to drivers. Section 523(a) of the Bankruptcy Code lists debts that cannot be discharged. Two are relevant: debts "for willful and malicious injury by the debtor to another entity or to the property of another entity" (523(a)(6)), and debts "for death or personal injury caused by the debtor's operation of a motor vehicle" when the operation was unlawful because the debtor was intoxicated from alcohol, a drug or another substance (523(a)(9)), per the text at Cornell's Legal Information Institute. A drunk-driving injury judgment can therefore survive a bankruptcy.
Bankruptcy also has costs and consequences of its own. It is a public court case, it affects credit for years, and in a liquidation case a trustee may sell non-exempt property. It is a last resort, not a plan for having low limits. See our article on refused settlements and excess judgments: the insurer's duty to settle for the separate question of whether the insurer could be responsible for more than its limit if it mishandled a settlement offer.
License suspension for an unpaid judgment
The financial responsibility laws that require insurance also tie driving privileges to paying judgments in many states. California is one example: Vehicle Code section 16370 requires the DMV to suspend the driving privilege of a person after it receives a certified copy of a damages judgment, with a certificate of facts showing the judgment has gone unsatisfied for 30 days. Our glossary entry on the financial responsibility law explains the general idea, and other states have their own triggers, waiting periods and ways to restore a license, such as installment arrangements or proof of insurance.
The consequence is easy to overlook. A person who relies on a car for work can lose the ability to drive to earn the wages that would pay the judgment.
What to do instead of betting on being judgment-proof
The cheapest way to handle an excess judgment is to make it less likely. Here is a sequence that fits a tight budget.
- Price several limits. Ask for quotes at your current limits and at higher ones, such as 50/100/50 and 100/300/100. The extra cost of higher limits is often smaller than people expect, because the first dollars of coverage are the most expensive; our article on the price of liability limits: how much each step up really costs shows how to read the increments.
- Use the calculators. The How much car insurance do I need? and the liability limits decoder show what the numbers mean.
- Look at an umbrella policy. An umbrella policy adds limits on top of the auto policy, usually with minimum underlying limits. See umbrella insurance: liability protection above your auto policy for the rules.
- Report every claim and forward every lawsuit paper at once. The insurer's duty to defend depends on notice, and an ignored summons can lead to a default judgment.
- If you are sued for more than your limit, tell the insurer in writing that you want it to settle within limits if it can, and talk to an attorney about your own exposure.
- Keep the policy in force. A lapse removes the coverage that would have paid the first $25,000, and driving without it can bring separate penalties under your state's law.
Common questions
If I have nothing, can they still get a judgment against me?
Yes. A judgment is a finding that you owe the money, and it exists whether or not you can pay. What changes is how much can be collected now, and the creditor may wait for your circumstances to change.
Can they take my wages in every state?
No. Federal law caps garnishment where it is allowed, and some states prohibit or sharply limit wage garnishment for ordinary civil judgments, as Texas and Pennsylvania do under the statutes above. Those states have other tools, so the protection is narrower than it sounds.
Does bankruptcy wipe out the judgment?
Often it can discharge an ordinary negligence judgment, but not all of them. The exceptions in section 523(a) include injuries caused by driving while intoxicated and willful and malicious injury. Bankruptcy has other costs, so get legal advice before treating it as a plan.
Will my insurer pay more than my limit if I ask?
Not on request. The policy limit is the most it must pay under the contract, with limited exceptions such as unreasonable refusal of a settlement offer within limits, which depends on state law and facts. That is a question for an attorney.
Key takeaways
- A judgment above your limit is your personal debt, and it can last many years and collect interest.
- Federal law caps wage garnishment at the lesser of 25 percent of disposable earnings or the amount above 30 times the federal minimum wage per week, and some states are stricter or ban it.
- Exemptions for retirement accounts, benefits and a home vary by state, so do not assume what is protected.
- Bankruptcy and license rules can add consequences, including a suspension after an unpaid judgment in states such as California.
- Pricing higher limits or an umbrella is usually cheaper than managing an excess judgment.