If a defendant can’t pay a court settlement, the plaintiff has to go back to court, turn the broken settlement into an enforceable judgment, and then use collection tools like wage garnishment, bank levies, and property liens to get paid. The debt doesn’t disappear if the defendant is broke, and it grows with interest the entire time it goes unpaid. What follows walks through each step, what blocks it, and what a defendant who truly can’t pay should do instead of ignoring the problem.
Turn the Settlement Into a Judgment First
A settlement agreement is a private contract. When the defendant stops paying, the plaintiff’s strongest move is to ask the court that handled the original lawsuit to enforce the deal through a motion to enforce the settlement agreement. The court reviews whether a valid agreement existed and whether the defendant broke it. If the answer to both is yes, the judge can order the defendant to comply or convert the settlement into a formal court judgment.
That conversion matters. A private contract gives you the right to sue for breach. A court judgment gives you direct access to the defendant’s wages, bank accounts, and property. Once a judge enters the judgment, the plaintiff becomes a judgment creditor and the defendant becomes a judgment debtor, and that status is what unlocks every collection tool below. Filing in the original court is usually fastest and cheapest, though a separate breach-of-contract lawsuit is also an option.
Check for Insurance Before Chasing Personal Assets
Before going after a defendant’s paycheck or house, confirm whether liability insurance covers the debt. Many settlements come out of car accidents, slip-and-fall injuries, or professional errors where the defendant carried auto, homeowner’s, or commercial liability insurance. When insurance applies, the insurer typically pays directly and the defendant’s personal finances never come into play.
The problem is when the judgment exceeds the defendant’s policy limits. If someone has a $100,000 auto policy and the settlement is $250,000, the insurer pays its $100,000 and the defendant owes the remaining $150,000 personally. A defendant who looks unable to pay may still have a policy that covers part of the debt, so plaintiffs should ask about coverage early.
The Debt Grows While It Sits Unpaid
An unpaid judgment doesn’t stay frozen at the original dollar amount. Federal courts add interest from the date the judgment is entered, using the weekly average one-year Treasury yield and compounding annually.1Office of the Law Revision Counsel. 28 U.S. Code 1961 – Interest State courts set their own rates, which vary widely. The creditor doesn’t have to lift a finger for this to happen; interest accrues automatically. In some cases, the creditor can also add collection costs like process server fees and court filing charges to the balance.
How Judgment Creditors Actually Collect
The court does not collect money for the plaintiff. Enforcement is on the creditor, and the three main tools each target a different type of asset.
Wage Garnishment
Wage garnishment redirects part of the defendant’s paycheck before the defendant ever sees it. The creditor obtains a court order and serves it on the employer, who withholds a portion of each paycheck and sends it to the creditor until the judgment is satisfied.2Consumer Financial Protection Bureau. Can a Debt Collector Take or Garnish My Wages or Benefits?
Federal law caps how much can be taken. For a regular judgment, the maximum is the lesser of 25 percent of the debtor’s disposable earnings for the week, or the amount by which weekly disposable earnings exceed 30 times the federal minimum wage.3Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment With the federal minimum wage at $7.25 per hour, that floor is $217.50 per week. A debtor whose weekly disposable earnings fall at or below that amount can’t be garnished at all. Someone taking home $300 per week would face a cap of $32.50, not the full 25 percent. Many states set lower limits, and the debtor keeps whichever protection is greater.
Child support and alimony follow higher limits, up to 50 or 60 percent of disposable earnings depending on whether the debtor supports another family, plus an extra 5 percent for overdue payments.3Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment Federal and state tax debts are also exempt from the 25 percent cap.
Bank Levies
A bank levy goes after money in the defendant’s checking or savings accounts. The creditor obtains a court order, serves it on the bank, and the bank freezes the account up to the amount of the unpaid judgment, then turns the funds over to the creditor.
Accounts that receive federal benefits get automatic protection. Under federal regulations, the bank reviews the account for any federal benefit deposits made during a two-month lookback period and shields that amount from the freeze without the account holder having to request it.4eCFR. Garnishment of Accounts Containing Federal Benefit Payments The bank then sends the account holder a notice within three business days explaining what happened. Anything above the protected amount stays frozen.
Property Liens
If the defendant owns real estate, the creditor can record the judgment in the county where the property sits, creating a lien. The lien attaches the debt to the property as a matter of public record. The creditor doesn’t take ownership, but the defendant can’t sell or refinance without paying off the judgment from the proceeds.
Forcing a sale is a separate, harder step. The creditor would have to petition the court for an order of sale and pay off any mortgage and senior liens before collecting anything. It’s expensive and slow, so creditors usually wait for the defendant to sell voluntarily and get paid at closing. Every state also offers some form of homestead exemption protecting a portion of equity in a primary residence; protected amounts range from almost nothing in a couple of states to unlimited equity in a handful of others. If there isn’t enough equity above the exemption, a forced sale isn’t worth attempting.
Finding Out What the Defendant Actually Owns
Collection tools are only useful if the creditor knows where the money is. Defendants who don’t pay voluntarily rarely volunteer a list of their accounts. Post-judgment discovery solves this with court-backed authority to investigate the debtor’s finances.
The most common tool is a set of written questions the debtor must answer under oath covering employment, income, bank accounts, and property. If written answers aren’t enough, the creditor can request a debtor’s examination, where the debtor appears in court or at a deposition and answers on the record. Ignoring the order isn’t a safe option. A debtor who refuses to appear or answer faces civil contempt, which can mean fines or incarceration until the debtor complies.5Federal Judicial Center. The Contempt Power of the Federal Courts The incarceration isn’t punishment for the debt; it’s pressure to follow the court’s order.
When the Defendant Is Judgment Proof
Sometimes a creditor with a valid judgment can’t collect because the defendant has nothing to take. A person is considered judgment proof when their only income comes from protected sources and they own no seizable assets. Social Security benefits are shielded from garnishment by private creditors under federal law.6Social Security Administration. SSR 79-4 Social Security can still be reached for child support, alimony, federal taxes, and certain government debts, but a regular judgment creditor can’t touch it.7Consumer Financial Protection Bureau. Can a Debt Collector Take My Federal Benefits, Like Social Security or VA Payments? Other protected benefits include veterans’ payments, SSI, federal disability payments, and military pay.
Being judgment proof doesn’t erase the debt. The judgment stays valid and enforceable, typically for 10 to 20 years depending on the state, and most states let creditors renew it before it expires. A debtor who is judgment proof today might land a good job, inherit property, or come into money five years from now. The creditor can sit on the judgment and collect the moment circumstances change, with interest piling up the entire time.
Hiding Assets Doesn’t Work
Some debtors try to look judgment proof by transferring property to friends or family. This rarely works. Nearly every state has adopted some version of the Uniform Voidable Transactions Act, which lets creditors challenge transfers made to dodge a debt. A court that finds a transfer was fraudulent can reverse it, order the property returned, and in some cases award the creditor attorney’s fees on top of the original judgment. Courts look at whether the debtor transferred assets shortly after the lawsuit was filed, whether the transfer was to a close relative, and whether the debtor received fair value in return. Transfers that check those boxes draw heavy scrutiny.
What a Defendant Who Can’t Pay Should Do
Ignoring a judgment is the worst strategy. Interest accrues, patience runs out, and eventually garnishments and levies start hitting without warning. Defendants who genuinely can’t pay have better options if they act early.
Negotiate a Payment Plan or Reduced Lump Sum
Most creditors would rather get something than nothing. Reaching out to propose a structured payment plan often works, especially when the alternative is years of expensive collection with no guarantee of recovery. Some creditors will accept a reduced lump sum to close the matter. If the creditor forgives $600 or more of the debt, the creditor must report the canceled amount to the IRS on Form 1099-C.8Internal Revenue Service. Instructions for Forms 1099-A and 1099-C The debtor may then owe income tax on the forgiven portion, so the tax side is worth sorting out before agreeing to a reduced settlement.
Bankruptcy, and What It Won’t Erase
For defendants buried in debt from multiple directions, bankruptcy can wipe out the judgment obligation. A successful discharge means the creditor can no longer pursue the debt.9United States Courts. Bankruptcy It’s a drastic step with years of credit consequences, and it doesn’t work for every judgment.
Federal law lists categories of debts that survive bankruptcy no matter what: debts obtained through fraud or false pretenses, debts for willful and malicious injury to another person or their property, and debts for death or personal injury caused by driving under the influence of alcohol or drugs.10Office of the Law Revision Counsel. 11 U.S. Code 523 – Exceptions to Discharge Child support, alimony, and most tax debts also can’t be discharged. If the underlying judgment falls into any of these categories, bankruptcy won’t clear it.