If you receive notice of a "Dismissal without Prejudice" in your case, this means that the case has been dismissed, either by the Plaintiff or court, but it can be brought again at a later time. The plaintiff can file a new lawsuit at any time or sell it to another creditor who can continue to send you collection letters or calls, or sue you again for the debt.

Be aware that you may have a legal defense to any future actions called a statute of limitations. This defense requires that a lawsuit is filed within the statute of limitations, otherwise, cases filed beyond this time period will be defensible. The statute of limitations in California is 4 years from the breach of contract. Breach is determined as the first month in which you missed your last payment- so the month after you made your last payment.

Important: if you begin making payments on the account now, the “clock” will start running from the moment you make the payment. The 4 years will be counted beginning on the date that you make your most recent payment, and the plaintiff will have more time to bring the case to court again.

It is impossible to know if they will file another lawsuit against you. If the date of last payment is close to 4 years ago, and you do not make another payment, it is likely that you may have the statute of limitations defense if they bring a case against you again for this debt. Regardless, if the Plaintiff is a third-party debt collector, their burden of proving the debt in any future lawsuit remains high

If you receive notice of a "Dismissal with Prejudice" in your case, this means that the case has been dismissed by the Plaintiff and it cannot be brought again. Because this is a dismissal “with prejudice”, you can no longer be sued for this debt. If you are sued for this specific account in the future, you should seek the help of a consumer protection attorney for unfair debt collection practices. (These cases are often taken on contingency, meaning that the attorney recoups his/her fees from the lawsuit, and you would likely get some amount for damages allowed under the law.)

You can settle the debt at any time, including after the case has ended if there was a judgment entered against you. However, your leverage does change at different points. Because your ability or inability to pay does not change, it is best to try to negotiate a settlement at the time that you have the most leverage over the Plaintiff. Before going into when to settle, you should first understand your settlement position.

Settlement Position:

Protected income is income that cannot be taken to enforce a judgment under the law. If you receive protected income, the Plaintiff, even if it has a judgment, cannot take any of the protected income from you--the only way they can take the money and not return it is if you willingly give it to them. Please see the different types of protected income listed in the next section. Even if you receive protected income, you should not necessarily shirk the possibility of a judgment against you, there are other important negative consequences of a judgment, but as far was the most pressing concern of losing money, this is only to inform you that protected income cannot be taken.

​Very important considerations to take into account for your settlement position:

A judgement can be reported on your credit report. NOTE that a judgment is good for 10 years and renewable 1 time for five (5) more years, so it will not necessarily fall off after 7 years. Your credit report can be used in your application for housing, jobs, and loans and a negative report can limit your options. Once the judgment is entered and/or renewed, there is very little you can do to remove it without paying it off--either in full or partially with a settlement. NOTE that a settlement will likely result in a "Settled" indication on your credit report which signals that you did not pay it in full.

The protected income you may be receiving now may only be temporary. If you plan to work again, your future wages will not be protected income and may be subject to garnishment, so not only will you have the judgment on your credit report, you will still have to pay the debt through forcible means, unless you settle or voluntarily pay it off.

If you have a home that you live in, a new California law prohibits a creditor who holds a judgment against you for less than $75,000 from selling your home unless that debt was originally secured by your home.

Unprotected Income:

Unlike protected income, unprotected income is income or assets that are not automatically protected under the law. This is usually your wages from your employment, gifts you may receive from family and friends, or anything else that is not listed in the above section for protected income. Still, the law limits the judgment holder to 25% of your paycheck, and you can ask the court for a reduction in the amount taken from your bank (levy) or your wages (garnishment) through a claim of exemption request. (See Wage Garnishment and Bank Levy below for more).

Most optimal times to try to settle:

The best time to entertain a settlement is at the end of the case, but before trial. By this point, you will know the likelihood of the Plaintiff winning its case, the Plaintiff is typically cut off from bringing in more evidence (outside of what is produced in the Request for Statement of Witnesses and Evidence to be used at Trial (C.C.P. §96 Request) that you should have sent 45 days before the trial), and you are not bound to the debt by a judgment yet. ​

Especially where the Plaintiff has not responded to your request for a Statement of Witnesses and Evidence to be used at trial, and/or if they have sent you a notice to appear with the wrong information and it is within 10 days of the trial (thus too late for them to send you a correct notice), you have more leverage because the Plaintiff does not have all the tools it could use to prove its case (see the next section about terms to understand and your settlement options).

Remember, you can always settle the debt earlier, but that's not good for you because you may have won the case anyway. Also, waiting out the case gives you time to save money if you know that you want to settle (more on this in the next section). You can also settle the debt after a judgment has been taken against you, but you have far less leverage because, unless you are permanently only receiving protected income, the judgment holder can wait out your financial situation until it changes and collect its money, and the accruing interest, at a later date.

Settlement Options:

If your income is entirely and permanently protected income, you should disclose that to the attorney for the plaintiff and ask for a mutual release. A mutual release is an agreement between you and the Plaintiff that says that you agree not to sue them for any unfair debt collection practices related to this specific debt, whether known or unknown, in exchange for the Plaintiff's dismissal of the case with prejudice.

If you are not only receiving protected income, or if your income status can change in the future, the amount that you settle for depends on what you can afford.​

First, the larger the lump sum you can muster together, the less you are likely to pay overall. For example, a one-time payment of $500 is more likely to be accepted than payments of $50 over the next 12 months (total of $600). You should be able to express a good reason for why the lump sum payment is a one-time ​only situation, for example, during COVID-19, the federal government's supplemental increase ended in July and that was the last time a client would have "spare" income to put towards a settlement. (Yes, unemployment income is protected, but in that case, because the Plaintiff was an original creditor who was able to prove its case, and the defendant was only temporarily unemployed, a settlement agreement was the best option for that person.)

Second, do not set yourself up for disaster by making a long term payment plan. For the vast majority of people being sued for debt collections, not being able to keep up with the payments is the reason they have been sued. When you enter a settlement agreement that requires you to make a payment, the Plaintiff will require that you enter into a stipulated judgment. A stipulated judgment is one where you and the Plaintiff agree that the Plaintiff can ask the court to issue a judgment against you for the full amount of the case if you breach the settlement agreement. Instead, try to figure out the most you can afford to pay over 3 months to settle the debt and offer that. For example "The most I can pay is $250/month for 3 months for a total of $750 to settle the debt. Because my employment is not guaranteed, this is the best I can do".

Protected income is income that cannot be taken to enforce a judgment under the law. If you receive protected income, the Plaintiff, even if it has a judgment, cannot take any of the protected income from you--the only way they can take the money and not return it is if you willingly give it to them.

Here are the most common types of protected income in California and under the Federal Law:

Social Security (SSA), Supplemental Security Income (SSI), and Social Security Disability Insurance (SSDI) (Exempt from debt collection under 42 U.S.C. §407)

Public Assistance (Exempt from debt collection under C.C.P. §704.170 and Welf.& I C §17409)

Unemployment (Exempt from debt collection under C.C.P. §704.120)

Worker's Compensation (Exempt from debt collection under C.C.P. §704.160)

Pension/Retirement (Exempt from debt collection under C.C.P. §704.115 and C.C.P. §704.110)

The last $1788* of your wage income in your bank account (Exempt from debt collection under C.C.P. §704.220, *amount changes based on Welf & I C §11452)

If you receive protected income and you have a judgment against you, you should

1) not co-mingle any money that is not yours in the same account as the protected income,

2) not co-mingle any unprotected income with the protected income in the account,

3) not transfer the protected income to another account in order to allow for easy tracing from the source of protected income to your account--this way there is no confusion and no potential for the bank or judgment holder to mistakenly take your protected income,

4) notify the bank where the protected income goes in writing of the following:

"Date:________________________

RE:­­­­­­ Notice of Exempt Character of Funds

ACCT#:[Account number of where the protected income GOES, not where it comes from]

To Whom it May Concern,

Please be advised that my sole source of income is from:

__ Social Security (SSA), Supplemental Security Income (SSI), or Social Security Disability

__ Insurance (SSDI), which is exempt from debt collection under 42 USC §407

__ Public Assistance, which is exempt from debt collection under CCP §704.170 and Welf & I C §17409

__ Unemployment, which is exempt from debt collection under CCP §704.120

__ Worker’s Compensation, which is exempt from debt collection under CCP §704.160

__ Pension/Retirement, which is exempt from debt collection under CCP §704.115 and CCP §704.110

__Other:______________________________________________________________________

This exempt source of income is directly deposited into my account at your bank, referenced above. Therefore, any attempt by any judgment creditor to levy or garnish my account should not be allowed. I request that you add this letter to my file to help protect against erroneous release of protected funds to a judgment creditor in the future.

Effective May 1, 2011, the Federal Rule 31 CFR Part 212.6 requires financial institutions to immediately calculate and establish the protected amount, ensure that the account holder has full customary access to the protected amount, and shall not freeze the protected income in response to a levy order.

Effective September 1, 2020, California Code of Civil Procedure Section 704.220 (a) requires that “money in a judgment debtor’s deposit account in an amount equal to or less than the minimum basic standard of adequate care for a family of four for Region 1* is exempt without claim. (*Region 1 as established by Section 11452 of the Welfare and Institutions Code and as annually adjusted by the State Department of Social Services)

Finally, please be aware that I am __ disabled / __ a senior citizen, and any error that results in the seizure of my protected funds would cause me extreme hardship and distress.

Sincerely,

_______________________________"

Make a copy to keep for your records.

When you can’t afford to settle, but not all of your income is not automatically protected under the law, the Plaintiff may seek to enforce the judgment through a legal but limited taking. The two most commonly used methods for individual people is through a bank levy or wage garnishment.

When enforcing a judgment, the Plaintiff uses the sheriff to execute the order. This means that the sheriff is responsible for providing you notice of a bank levy or wage garnishment, however, most of the time, people only find out about the levy or garnishment when they go to access their bank account and find that their money is frozen or gone (levy), or if their pay check is less than normal (garnishment).

VERY IMPORTANT, READ FIRST:

If you do not owe the debt that is the subject of the judgment because the debt is not yours, or it was incurred through identity theft, seek the help of an attorney immediately and do not file the claims of exemption that will be discussed below. Because you are not as well suited to assess your situation as an attorney, it is extremely important that you speak with an attorney within 15 days of the notice of garnishment/levy in order to preserve your ability to file a claim of exemption, if it turns out that you should, and still be able to get your money back if granted. As you will see, filing a claim of exemption after a certain time will result in only exempting the money you have after the claim is filed without return of the money already taken (exceptions for protected income do apply).

About the Claim of Exemption:

For both a wage garnishment or bank levy, you have 10 days to file a claim of exemption from the date that you were personally given the notice, or 15 days from the date that the notice says that it was mailed. A claim of exemption is a request to the court to reduce the amount that is being withheld pursuant to a wage garnishment or bank levy. There are different claim of exemption forms depending on if you have a bank levy or a wage garnishment. For either type, a claim of exemption can be filed at any time. However, if you miss the initial deadline and the claim of exemption is granted, only wages and money withheld after the date the claim of exemption was submitted will be returned. In either a garnishment or levy, you cannot file the claim of exemption before the notice is served. However, because there is a short amount of time to respond, it is recommended that you seek legal advice before receiving notice if you know you have a judgment against you and start the paperwork so that there is little left to be filled in when you receive notice of levy/garnishment.

The following types of protected income are automatically exempt without filing a claim of exemption:

• Social Security and other federal benefits such as SSDI, SSI, SS Retirement, and Veteran's Benefits (38 U.S.C. §3101, 42 U.S.C. §407)

• County and State benefits, such as General Assistance, CalWorks, CalFresh, Unemployment, Workers' Compensation, etc. (C.C.P. §§ 704.120, 704.160, 704.170, Welf & I C §17409.

For these automatically protected types of income, and even the protected income that is not automatically collected, it is highly recommended that you provide your bank where the income is deposited, as well as the plaintiff, a copy of the letter above to provide them notice of the protected status of the income in your bank account.

NOTE: Pension, self-employed retirement, and student loans are exempt from collections, but not automatically and will require a claim of exemption and proof of the source of income (C.C.P. §§704.110, 704.115, 704.190)

Wage Garnishment:

The maximum that can be garnished from your wages is the lesser of: (1) 20% of the employee’s disposable earnings for the week, or (2) 40% of the difference between the employee’s disposable earnings for that week and the applicable minimum wage for that week. See this site for steps that your employer must follow if they receive a notice of wage garnishment.

​A claim of exemption is automatically granted if employment is less than 40 times the state minimum hourly wage in effect at the time the earnings are payable (C.C.P. §706.050(a)(2))

If you are low-income, the court does not automatically grant the claim of exemption if an opposition is filed.

The court will base its decision on your ability to prove that all your income is necessary for the support of you and your family. (C.C.P. §§701.010(a), 703.510, 706.051(b))​

Detailed information about filing out a claim of exemption for wage garnishment can be found here. ​

​Bank Levy:

All of your unprotected income in your bank account can be frozen as the subject of the levy. If you miss the deadline to file the claim of exemption, the money being held will be taken.

A claim of exemption is needed for protected income that is not automatically exempt (see above).

A claim of exemption is needed if the money in the bank account is wages, because only a portion may be taken (C.C.P. §706.050(a)(2)).

A claim of exemption is needed if you can prove that the income is necessary for the support of you and your family. (C.C.P. §§701.010(a), 703.510, 706.051(b))

NOTE that the court considers all assets in making its decision, so the court may deny the exemption if there are a lot of assets.

Detailed information about filing out a claim of exemption for bank levy can be found here.

Many people believe that bankruptcy is the right choice for them when a judgment is entered against them because it is viewed as "debt relief". However, bankruptcy is more about asset protection than debt relief. Bankruptcy stops the collection activity--including collection calls, letters, and lawsuit-- and discharges debt (in some cases, not all, depending on your qualifications) in order to help the claimant protect his/her wages. If you are receiving only protected income, your income is already protected under the law and a bankruptcy (which is not free) will do little to help you. You can stop collection calls and letters by sending the collector a cease and desist letter that simply states the account you are referring to and a statement saying "stop contacting me". They can still sue you to collect the debt, but again, if your income is protected, they cannot take anything from you.

Additionally, student loans (federal and private) are rarely discharged in bankruptcy. If a majority of your debt is student loans, bankruptcy is usually not the right option. Instead, get on an Income Based Repayment Plan for federal student loans, or negotiate an affordable repayment plan with a private lender.

To find a bankruptcy attorney in Northern California, call the Lawyer Referral and Information Service line at (415) 989-1616.

Sometimes a judgement is obtained under pretenses that are not allowed under the principle of our constitutional right to due process.

When this happens, the aggrieved party can ask the court to undo its order with a “Motion to Set Aside”. The basis for a Set Aside can vary. Here are the circumstances that would allow for a set aside:

• Inadvertance, Surprise, Mistake, or Excusable Neglect

• Party not given actual notice in time to defend

• Void Judgement on the court’s own motion

See more information here.