The Judgment-Proof Society
159 Pages Posted: 14 Nov 2005
Judgment-proof tortfeasors - individuals who lack sufficient collectible income and assets to pay for the torts they commit - are not deterred by the threat of tort liability and are not accountable in corrective justice. Although the judgment-proof problem is frequently alluded to in torts scholarship, the causes and pervasiveness of that problem have received little attention. This article argues that much of the judgment-proof problem is attributable to legal rules that enable uninsured and underinsured individuals to escape tort liability by sheltering their income and assets from collection. These legal barriers to collecting tort judgments include limits on wage garnishment, homestead exemptions, retirement-plan exemptions, discharge in bankruptcy, spendthrift trusts, offshore asset protection trusts, and more. Of course, indigent persons would be judgment-proof even without these rules, because they have so few assets and so little income. Contrary to the myth of personal tort liability that is standard in torts scholarship and teaching, however, these legal rules enable millions of working-class, middle-class, and affluent people to be (or become) judgment-proof despite the fact that they have steady incomes and significant assets that could be used to satisfy a tort judgment. The article describes the most important of these judgment-proofing rules in depth, demonstrates that they seriously undermine the deterrence and corrective justice goals of tort law, argues that they lack any persuasive justification, proposes specific reforms to reduce the judgment-proof problem, and evaluates the political feasibility of this agenda. It also evaluates the intriguing role of liability insurance as a response to the residual threat of personal tort liability, and suggests ways in which individuals could be induced (or required) to purchase more liability insurance in order to ameliorate the judgment-proof problem.
Keywords: judgment-proof, collection exemptions, liability insurance
JEL Classification: K13, K41
Suggested Citation: Suggested Citation