What Happens If I Get Sued and Have No Money?

The harsh reality is that being sued with no money is a terrifying prospect, but it doesn’t automatically mean utter ruin. The plaintiff can win a judgment against you, but collecting that judgment is another story. The most immediate impact is the stress and emotional toll. Legally, the plaintiff can pursue several avenues to collect, including wage garnishment, bank levies, and property liens. However, the extent to which they can succeed heavily depends on your state’s laws, the type of income you receive, and what assets you own (if any). While they can’t generally throw you in jail for being broke, they can make your life significantly more difficult until the debt is paid off, or the judgment expires.

Understanding the Legal Landscape

The legal process begins with a summons and complaint. Ignoring these documents is the worst thing you can do. A default judgment will almost certainly be entered against you if you don’t respond within the allotted time (usually 20-30 days, depending on your jurisdiction). This means the plaintiff automatically wins, and you lose any chance to argue your case.

Instead, respond to the lawsuit, even if you have no money. You can file an “Answer” denying the allegations or explaining your side of the story. Seeking legal assistance, even if it’s just a consultation with a lawyer or help from a legal aid organization, is highly recommended.

Exempt vs. Non-Exempt Assets

A critical concept is understanding exempt versus non-exempt assets. Exempt assets are protected by law and cannot be seized to satisfy a judgment. These vary widely by state but often include:

• A certain amount of equity in your primary residence (homestead exemption)
• Essential personal property (clothing, furniture, household goods)
• Retirement accounts (401(k)s, IRAs)
• Social Security benefits
• Unemployment benefits
• Workers’ compensation benefits
• Public assistance benefits (TANF, SSI)

Non-exempt assets, on the other hand, are fair game for creditors. These can include:

• Vacation homes or investment properties
• Luxury items (expensive jewelry, artwork)
• Cash in bank accounts (beyond what’s protected by law)
• Stocks and bonds
• Vehicles (beyond a certain value or number)

Judgment Liens and Garnishment

If the plaintiff wins the lawsuit and obtains a judgment, they can then pursue collection. Two common methods are:

• Judgment Lien: This attaches to your real property, like your house. If you sell the property, the lienholder (the plaintiff) gets paid first before you receive any proceeds.
• Wage Garnishment: This is a court order that requires your employer to withhold a portion of your wages and send it to the plaintiff. There are limits on how much can be garnished; federal law generally protects a significant portion of your earnings. State laws may offer even greater protections.

Navigating Your Options When Broke

Being broke doesn’t mean you’re powerless. Here are some strategies to consider:

• Negotiation: Try to negotiate a payment plan with the plaintiff or their attorney. Explain your financial situation honestly and offer what you can realistically afford. Sometimes, a small, consistent payment is better for them than nothing at all.
• Debt Settlement: Offer a lump-sum payment that’s less than the full amount owed in exchange for the plaintiff releasing you from the debt. This works best if you can get help from family or friends or save up a portion of the debt over time.
• Bankruptcy: This is a drastic measure, but it can provide a fresh start. Chapter 7 bankruptcy can discharge many types of debt, including judgments. However, it also has serious consequences, including damage to your credit score. You should consult with a qualified bankruptcy attorney to determine if it’s the right option for you.
• “Judgment Proof”: If your income consists solely of exempt sources (like Social Security or SSI) and you have no non-exempt assets, you may be considered “judgment proof.” This means the creditor may still obtain a judgment, but they will have a very difficult time collecting on it. You still need to respond to the lawsuit, but you can argue that you have no assets to seize.

Frequently Asked Questions (FAQs)

Here are some frequently asked questions to further illuminate the topic:

1. Can I go to jail for not paying a civil judgment?

Generally, no. You can’t be jailed for simply being unable to pay a civil debt. Jailing for debt is largely illegal in the United States. However, you could face legal consequences if you intentionally hide assets or fail to comply with court orders related to the collection process.

2. What if I lose my job after the judgment is entered?

If you lose your job and your wages are being garnished, you need to notify the court and the plaintiff’s attorney immediately. The garnishment will stop, but the judgment remains valid. You may be able to negotiate a new payment plan or explore other options based on your changed circumstances.

3. How long does a judgment last?

The duration of a judgment varies by state. It’s typically between 5 and 20 years. The judgment can often be renewed before it expires, extending the time the plaintiff has to collect.

4. Will a judgment affect my credit score?

Yes, a judgment will almost certainly negatively affect your credit score. It will appear on your credit report and can significantly lower your score, making it harder to get loans, credit cards, or even rent an apartment.

5. What if the lawsuit is frivolous or without merit?

If you believe the lawsuit is frivolous, you should file a response with the court outlining your reasons and arguments. You may even be able to get the case dismissed. Consulting with an attorney is crucial in this situation.

6. Can a creditor take my Social Security benefits?

Generally, no. Social Security benefits are usually protected from garnishment. However, there are some exceptions, such as for debts owed to the federal government (e.g., back taxes, student loans).

7. What if I am sued for a debt that isn’t mine?

You must respond to the lawsuit immediately and explain that the debt is not yours. Provide any evidence you have to support your claim. This is often a case of mistaken identity or identity theft.

8. Can a creditor take my car?

It depends. If your car is financed and you’re behind on payments, the creditor can repossess it. If you own the car outright, it may be subject to seizure to satisfy a judgment, but many states have exemptions protecting a certain amount of vehicle equity.

9. What is a debtor’s examination?

A debtor’s examination is a court hearing where you are required to answer questions under oath about your assets and financial situation. Failing to appear can result in serious consequences, including contempt of court.

10. Should I try to hide assets from creditors?

Absolutely not. Hiding assets is illegal and can result in serious penalties, including fines and even criminal charges. Be honest and transparent about your financial situation.

11. Can I transfer my assets to someone else to avoid a judgment?

This is called a fraudulent transfer and is also illegal. If you transfer assets with the intent to avoid paying creditors, the transfer can be reversed, and you could face legal consequences.

12. Where can I get free or low-cost legal help?

There are several resources available for free or low-cost legal help:

• Legal Aid Societies: Offer free or low-cost legal services to low-income individuals.
• Pro Bono Programs: Many bar associations and law firms offer pro bono (free) legal services.
• Law School Clinics: Law schools often have clinics where students provide legal assistance under the supervision of experienced attorneys.
• Self-Help Centers: Many courts have self-help centers that provide information and resources for people representing themselves.

Being sued when you have no money is a daunting experience, but understanding your rights and options is crucial. While the plaintiff may obtain a judgment, their ability to collect depends on your circumstances and the applicable laws. By taking proactive steps and seeking legal assistance, you can navigate this challenging situation and protect your financial future as much as possible.