Bankruptcy Alternative: The Don’t Pay a Dime Strategy

I just answered a question on from someone in the Modesto area, who is unemployed and had $20,000 in total debt and wanted to file Bankruptcy, but it was difficult to locate a Bankruptcy attorney who would do it for free or almost free. Below is a blog on my response to this person, so others may consider this strategy in similar circumstances.

If you are unemployed and have no real estate (either because you rent or live with family or friends) and almost nothing in the bank, attorneys describe this as being “judgment proof.” That term means a creditor can get a judgment against you, but it will be virtually impossible to get a dime from the case, because there are no wages to garnish, no bank account to levy, and no real estate (or home) to secure a judgment lien.

If the creditor or debt collector knows this up front, they would probably not hire a lawyer ($400 or more), file a debt collection lawsuit ($200 or more); pay to have a process server deliver the summons and complaint ($45 or more); and their time, costs, and expenses continue from there, even to get a default judgment and enforce the collection lawsuit. An unpaid debt collection judgment expires after ten years, and can be renewed for another ten years, but monitoring the employment and financial status of the defendant takes time and money to do properly. A debt collection judgment may also appear on the consumer’s credit report for seven years from date of entry, possibly longer.

Rather than file bankruptcy for this relatively low debt, see what happens if you don’t pay at all and put the creditors and debt collectors on notice that you cannot pay the debt, because of your unemployment status, low job prospects (due to the economic downturn), and lack of any assets with which to pay. In fact, send them a letter (regular mail should be fine) to this effect to the address where they are likely to read it (the address for correspondence, not payments). This letter should NOT promise to pay anything now or later, or ask for anything at all. Just be very matter of fact that you cannot pay the debt and have low job prospects. Please be candid and don’t overstate or understate how bad your situation is.

The result may be that you don’t get sued and the debt becomes uncollectible, because of the statute of limitations expiring. Once you have not paid (or promised to pay) the debt for more than a certain number of years, they cannot sue you or even threaten to sue you, as the statute of limitations will have expired. One word of caution: if you move out of state before the statute of limitations expires, Cal. Code of Civil Procedure, Section 351 may extend the deadline for as long as you are out of state.

Keep certain documentation. Please keep a file for your debts, preferably one file for each debt. Please do not put any marks on your documentation. Of course, save a copy of your letter, discussed above. Also, save the last few statements, starting with the last statement that shows you made a payment and keep all statements and late payment notices and debt collection letters that follow for each account. Finally, keep a copy of your last three payments from your bank, whatever you have to prove your last three payments.

My firm’s other web site,, has a number of sample letters that anyone can freely download and use as a template for this letter. I may soon prepare a sample letter specifically for this strategy, if people contact me and ask about my letter to possibly prevent the filing of more collection lawsuits against people who are judgment proof. Please let me know if this is a sample that you would like me to add.

My hunch is that this strategy may help you avoid being sued for a long time, hopefully at least several years. If you have questions about this strategy, please feel free to contact me for a consultation. I can also be reached by using the contact page on or

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