What Happens If You Are Sued But Have No Money?

Being sued is a terrifying prospect, but it’s particularly alarming when you lack the financial resources to defend yourself or satisfy a potential judgment. The stark reality is that being sued with no money doesn’t automatically mean you’re immune to the legal process. While you might not have assets readily available to seize, the lawsuit can still have significant consequences on your present and future financial well-being. The court can still issue a judgment against you, which can lead to wage garnishment, liens on future property, and damage to your credit score.

The Initial Steps: Understanding the Lawsuit

The first step is to understand the gravity and the nature of the lawsuit against you. Don’t ignore the summons and complaint. Ignoring it will only lead to a default judgment being entered against you, which is undoubtedly the worst-case scenario.

Responding to the Lawsuit

• Read the documents carefully: Understand the claims being made against you and the amount of money sought.
• File an Answer: This is a formal response to the complaint, addressing each claim and outlining your defenses. You must file this within the timeframe specified by the court (usually 20-30 days). Failing to file an answer results in a default judgment.
• Seek Legal Advice: Even if you have limited funds, try to consult with an attorney. Many bar associations offer pro bono (free) or low-cost legal services to those who qualify. Legal Aid organizations can also provide assistance.

Exploring Potential Defenses

Just because you have no money doesn’t mean you have no defenses. It’s crucial to explore all possible legal strategies.

• Statute of Limitations: Is the lawsuit filed too late, after the legal time limit has expired?
• Lack of Evidence: Does the plaintiff have sufficient evidence to prove their claims against you?
• Mistake of Fact: Are the facts alleged in the complaint inaccurate?
• Fraud: Is the lawsuit based on fraudulent claims?

What Happens During the Lawsuit

The lawsuit process involves several stages, even if you have limited resources.

Discovery Phase

This is where both sides gather information. You might be required to answer interrogatories (written questions), produce documents, or sit for a deposition (oral questioning under oath). Failure to comply with discovery requests can result in penalties.

Trial

If the case doesn’t settle or get dismissed, it will proceed to trial. You have the right to represent yourself (pro se), but it’s strongly advisable to seek legal assistance, even if it’s limited. A lawyer can help you navigate the complexities of the trial process and present your case effectively.

Judgment

If the plaintiff wins the lawsuit, the court will issue a judgment against you. This is a court order stating that you owe the plaintiff a specific amount of money. Even with no money, the judgment is a serious issue and can negatively affect your financial future.

Consequences of a Judgment When You Have No Money

While you might be judgment-proof (having no assets to seize) at the moment, a judgment can haunt you for years to come.

Wage Garnishment

The plaintiff can obtain a court order to garnish your wages, meaning a portion of your paycheck will be automatically deducted and sent to them until the judgment is paid off. There are legal limits to how much can be garnished, usually around 25% of your disposable income.

Bank Levies

The plaintiff can also try to levy your bank accounts. This means they can seize the funds in your accounts to satisfy the judgment. Certain funds, like Social Security benefits, are often protected from levy.

Liens on Property

If you own any property, such as a house or a car, the plaintiff can place a lien on it. This means that you cannot sell or refinance the property without first paying off the judgment.

Credit Score Damage

A judgment will appear on your credit report, significantly lowering your credit score. This can make it difficult to obtain loans, rent an apartment, or even get a job.

Post-Judgment Discovery

The plaintiff can conduct post-judgment discovery to find out if you have any assets that can be seized. This might involve asking you questions about your income, assets, and expenses.

Options When You Have No Money

Despite the grim outlook, there are several options to consider if you’re sued and have no money.

Negotiation

Attempt to negotiate with the plaintiff to reduce the amount owed or to establish a payment plan. They might be willing to settle for a lower amount rather than going through the hassle of trying to collect on a judgment.

Bankruptcy

Filing for bankruptcy can discharge (eliminate) many types of debts, including judgments from lawsuits. There are different types of bankruptcy, such as Chapter 7 and Chapter 13, each with its own eligibility requirements and consequences. Consulting with a bankruptcy attorney is crucial to determine if bankruptcy is the right option for you.

Exemptions

State laws provide certain exemptions that protect certain assets from being seized by creditors. These exemptions can vary widely from state to state and can include things like your home, car, personal property, and retirement accounts. Understanding your state’s exemptions is crucial to protecting your assets.

Challenging the Judgment

If you believe the judgment was obtained improperly (e.g., due to improper service of process or fraud), you can file a motion to vacate the judgment. This can be a complex legal process, so seeking legal assistance is essential.

Planning Ahead: Protecting Yourself in the Future

Even if you are currently judgment-proof, you can take steps to protect yourself in the future.

• Insurance: Maintain adequate insurance coverage, such as auto insurance, homeowners insurance, and renters insurance, to protect yourself from potential lawsuits.
• Estate Planning: Consider setting up trusts or other estate planning tools to protect your assets from creditors.
• Financial Planning: Develop a sound financial plan and avoid taking on unnecessary debt.

FAQs: Navigating the Legal Maze

Here are some frequently asked questions to help you navigate the complex situation of being sued when you have no money:

1. What does “judgment-proof” mean?

It means you have no assets that a creditor can easily seize to satisfy a debt. This doesn’t mean you’re immune to a lawsuit; it just means collecting is difficult.

2. Can they take my Social Security if I’m sued?

Generally, Social Security benefits are protected from garnishment, except in certain circumstances like owing money to the federal government.

3. If I inherit money after a judgment, can it be taken?

Yes, an inheritance is considered an asset and can be subject to seizure to satisfy the judgment.

4. How long does a judgment last?

The length of time a judgment remains valid varies by state, typically ranging from 5 to 20 years. It can often be renewed.

5. What is a default judgment?

A default judgment occurs when you fail to respond to a lawsuit within the specified timeframe. The plaintiff automatically wins the case.

6. Can they take my retirement account if I’m sued?

Retirement accounts, like 401(k)s and IRAs, are often protected from creditors under federal and state laws, but this can vary.

7. Will being sued affect my chances of getting a job?

A judgment can lower your credit score, which some employers check during the hiring process. It can also appear on background checks.

8. Can they take my car if I need it for work?

Many states offer exemptions that protect vehicles needed for work, up to a certain value.

9. Can I represent myself in court if I can’t afford a lawyer?

Yes, you have the right to represent yourself (pro se). However, it’s highly advisable to seek legal assistance if possible.

10. What’s the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 is a liquidation bankruptcy where assets may be sold to pay off debts. Chapter 13 is a repayment plan bankruptcy where you make payments over a period of time.

11. How do I find free or low-cost legal help?

Contact your local bar association, Legal Aid organizations, or law school clinics.

12. Is it better to ignore the lawsuit if I have no money?

Never ignore a lawsuit. This will lead to a default judgment against you, which is the worst possible outcome. Always respond and explore your options.