Being Sued for A Car Accident but Have No Money? Here's What to Do

Being involved in a car accident is stressful enough, but the situation becomes significantly more complicated when you're sued for damages, especially if you lack the financial resources to cover the potential costs.

The fear of mounting legal bills, wage garnishment, and even asset seizure can be overwhelming. However, understanding your options and taking appropriate steps can help you navigate this challenging situation and potentially mitigate the financial repercussions. 

This article will provide a comprehensive guide on what to do if you're sued for a car accident and find yourself in a financially precarious position.  

Steps To Take If You're Being Sued but Have No Money

Receiving a lawsuit summons can be frightening, but ignoring it will only worsen the situation. It's crucial to take immediate and decisive action.

Here are the necessary steps to take if you're being sued for a car accident and have limited financial resources:

1. Don't Ignore the Lawsuit

The worst thing you can do is ignore the lawsuit. The plaintiff will likely obtain a default judgment against you if you fail to respond within the specified timeframe (usually 20-30 days, depending on your jurisdiction.

In North Carolina, you will have 30 days to respond according to N.C. Gen. Stat. § 1A-1, Rule 12(a)(1), while in Utah, you will have 21 days if you within the state and 30 if you are outside it).

A default judgment grants the plaintiff the right to collect the full amount they sought in the lawsuit, including legal fees and court costs. This can lead to wage garnishment, bank levies, and liens on your property.  

2. Gather All Relevant Documents

Gather all documentation related to the accident, including police reports, medical bills, vehicle repair estimates, and any correspondence with the other party or their insurance company. This information will be crucial for your defense.  

3. Contact Your Insurance Company Immediately

If you had car insurance at the time of the accident, contact your insurance company immediately. Even if you believe you were at fault, your insurance policy likely includes liability coverage, which is designed to protect you in situations like this.

Your insurance company will typically assign a lawyer to defend you, and they will cover the costs of the defense up to your policy limits. Provide them with all the relevant documentation, including the lawsuit summons, any police reports, and any other correspondence related to the accident.  

4. Consult with a Lawyer

Even if your insurance company is handling your defense, it's still advisable to consult with your own attorney. An independent legal professional can provide you with unbiased advice and ensure your rights are protected.

They can also explain the legal process, assess the strength of the plaintiff's case, and advise you on potential settlement options. If you cannot afford a private attorney, explore options like legal aid societies or pro bono services in your area.  

5. Assess Your Financial Situation

It's essential to have a clear understanding of your financial situation. Create a detailed list of your assets, income, and debts. This will help you determine your options and whether bankruptcy might be a viable solution.

6. Explore Settlement Options

Your attorney can negotiate with the plaintiff's attorney to reach a settlement agreement. Settling the case can often be less expensive than going to trial, even if you have to pay a portion of the damages. Your insurance company might also be willing to contribute to a settlement within your policy limits.

7. Understand the Court Process

Familiarize yourself with the court process. This will help you understand what to expect and reduce your anxiety. Your attorney can explain the different stages of the lawsuit, including discovery, depositions, and trial.

6. Consider Filing for Bankruptcy

Bankruptcy can provide relief if you’re unable to pay a judgment. While it’s a drastic step, it may be the best option for avoiding long-term financial ruin. More on this in the next section.

Bankruptcy and Lawsuit Debts

Bankruptcy is a legal process designed to help individuals and businesses eliminate or repay debts under the protection of a federal court. If you’re being sued for a car accident and have no money, bankruptcy might be a viable solution, depending on the circumstances of your case.

The two most common forms of bankruptcy for individuals are:

Chapter 7 Bankruptcy

This is a liquidation process where non-exempt assets are sold to pay creditors. Most unsecured debts, including lawsuit judgments, are discharged if they cannot be paid off even after the asset sale.

Chapter 7 bankruptcy is provided for under 11 U.S.C Ch. 7, and to qualify for it your current monthly income must be less than the state median. 

However, since the primary reason behind that qualification metric is to only ensure that bankruptcy is not abused to obtain undeserved debt relief, you may still be able to declare bankruptcy if your income is above the state median but you pass the means test.

To pass the means test, your current monthly income reduced by expenses and debt payments provided for under 11 U.S.C § 707 (ii, iii & iv), then multiplied by 60 must be less than the lesser of:

1. 25% of your nonpriority unsecured debt or $9,075, whichever is greater, or
2. $15, 150

Chapter 13 Bankruptcy

This allows you to create a repayment plan to pay off debts over three to five years. It’s suitable if you have a steady income and want to protect certain assets.

Often referred to as a wage earner’s plan or reorganization bankruptcy, chapter 13 is more accessible and more popular than chapter 7 since it still requires debtors to pay, only in a reorganized manner. 

Provided for under 11 U.S.C Ch. 13, to qualify you must have a steady income, secured and unsecured debt less than $2,7550,000, be current with tax filings, and you cannot have filed for chapter 13 bankruptcy within the last 2 years.

Debts That Can and Cannot Be Discharged

Not all lawsuit-related debts can be discharged in bankruptcy. For example:

• Dischargeable Debts: Judgments for property damage, unpaid medical bills, and other financial losses may be eliminated through bankruptcy.
• Non-Dischargeable Debts: Judgments for willful or malicious acts, such as intentional harm or driving under the influence, cannot typically be discharged.

How Bankruptcy Affects the Lawsuit

Filing for bankruptcy triggers an automatic stay, which halts all collection actions, including lawsuits. This means:

• The plaintiff cannot pursue the lawsuit while the bankruptcy case is active.
• Any existing judgments may be voided or reduced, depending on the type of bankruptcy.

Consulting a bankruptcy attorney is crucial to understanding how this process applies to your specific situation.

How To Avoid A Financial Disaster

Being sued for a car accident can have significant financial repercussions, but proactive steps can help you avoid long-term hardship.

1. Prioritize Insurance Coverage

Having adequate insurance coverage is your first line of defense against financial disaster. Consider:

• Liability Coverage: Ensure your policy limits are high enough to cover potential lawsuits. 
• Umbrella Policies: These provide additional liability coverage beyond standard auto insurance limits.
• Uninsured/Underinsured Motorist Coverage: Protect yourself in accidents involving drivers with insufficient insurance.

Regularly review and update your policy to ensure comprehensive protection.

2. Practice Safe Driving Habits

Obey traffic laws, avoid distractions while driving, and drive defensively. This will reduce your risk of being involved in an accident in the first place.

3. Avoid Default Judgments

Responding to a lawsuit is critical to preventing a default judgment. Even if you’re unable to pay, appearing in court and presenting your case can:

• Demonstrate good faith, which may influence the court’s decision.
• Provide opportunities to negotiate a reduced judgment or payment plan.

4. Explore Alternative Resolutions

Litigation is not the only way to resolve a car accident dispute. Alternatives include:

• Mediation: A neutral third party helps both sides reach a mutually agreeable settlement.
• Arbitration: A private process where an arbitrator decides the outcome, often with fewer costs and delays than court.

Compared to traditional lawsuits, these methods can save you time, money, and stress.

5. Educate Yourself on Exemptions

Every state has laws that protect certain assets from creditors. Common exemptions include:

• Homestead Exemption: Protects equity in your primary residence.
• Wage Garnishment Limits: Caps the percentage of wages that can be garnished.
• Protected Income: Social Security, disability, and retirement benefits are often exempt.

Understanding these protections can help you shield essential assets from seizure.

6. Build an Emergency Fund

While it may seem impossible to save money when you’re already struggling, setting aside even small amounts can provide a financial cushion in case of future legal or medical expenses. Start with:

• Automatic transfers to a savings account.
• Cutting non-essential expenses.
• Utilizing financial assistance programs to free up cash for savings.

7. Communicate with Creditors

If you struggle to pay a judgment, communicate openly with the plaintiff or attorney. Many creditors are willing to work out payment arrangements to avoid the time and expense of pursuing collections.

8. Protect Your Assets

Use legal mechanisms to safeguard your assets from seizure. For example, transferring assets into a trust or ensuring your home qualifies for a homestead exemption can provide protection. Consult a financial advisor or attorney to explore these options.

9. Increase Your Income

While easier said than done, finding ways to increase your income can help you manage the financial strain of a lawsuit. Consider taking on a part-time job, freelancing, or selling unused items to generate extra cash.

10. Prioritize Essential Expenses

When money is tight, focus on covering essential expenses like housing, food, and healthcare. If you’re making payments on a judgment, stick to what the court has ordered and avoid overextending yourself financially.

How State Laws May Affect Your Situation

State laws play a significant role in determining how lawsuits and judgments are handled. Key factors include:

Statute of Limitations

Each state has a statute of limitations that sets the timeframe within which a lawsuit can be filed. If the plaintiff misses this deadline, their case may be dismissed.

Understanding your state’s statute of limitations can help you assess the validity of the lawsuit. For instance, California allows only two years before a car accident lawsuit must be brought according to Cal. Civ. Proc. Code § 335.1, but Maine allows up to six years according to Me. Stat. tit. 14, § 752.

Exemptions for Assets

State laws determine which assets are exempt from seizure to satisfy a judgment. For example, states like Iowa (Iowa Code § 561.16) and Texas (Tex. Prop. Code § 41.001) have generous homestead exemptions that protect the full equity in your primary residence.

Others like Arizona (Ariz. Rev. Stat. § 33-1101) and New York (N.Y. C.P.L&R § 5206) may allow creditors to claim a portion of it.

Wage Garnishment Limits

If a judgment is entered against you, the plaintiff may seek to garnish your wages. However, state laws limit the percentage of your income that can be garnished. Understanding these limits can help you plan your finances accordingly.

Florida, for instance follows the federal wage garnishment limits (15 U.S.C. § 1673) which entitles creditors to 25% of your disposable earnings. However, if your disposable income is less than 30 times the federal minimum wage, your wages won’t be garnished according to Fla. Stat. § 222.11.

How The Accident Helpers Can Help

Facing a lawsuit for a car accident when you have no money is undoubtedly stressful, but it’s not insurmountable. You can mitigate the financial impact by taking proactive steps, such as responding to the lawsuit, seeking legal advice, negotiating with the plaintiff, and exploring bankruptcy if necessary.

Ultimately, however, it is crucial to remember that engaging the services of financial planning professionals and car accident lawyers will help ensure you find the best solution if you are ever sued for a car accident but have no money. It may be challenging to find professionals that you can trust and are readily accessible, but that is where we – The Accident Helpers – come in.

With our network of the best legal professionals nationwide, we can easily connect you to the best and most experienced in your city. All you have to do is contact us, we get the facts of your case to determine the exact assistance you need, and immediately begin to work on finding the help you need.

Our services are completely free, so contact us now!