What Happens If Someone Sues You for a Car Accident and You Don’t Have Money?

Last Updated on September 15, 2023

If you’re involved in a car accident, then you may be liable for vehicle repair expenses, medical bills, and other expenses.

But what happens if you don’t have enough money to cover those costs?

If you are at fault for a car accident, then your insurance should cover certain costs up to the limits of your policy.

After your insurance limits are exhausted, you must cover additional expenses using your own money or assets. If you do not have enough assets to cover these costs, then you could negotiate a lower settlement, work with a lawyer, declare bankruptcy, or face wage garnishment, among other options.

Keep reading to find out everything you need to know about getting sued for a car accident when you don’t have any money.

Key Takeaways:

  1. Insurance Limits: If at fault in a car accident, your insurance covers up to its limit. Exceeding that, you’re responsible for additional costs.
  2. Asset Consequences: If unable to pay, you may become “judgment-proof.” However, debts can be pursued through asset seizures, wage garnishments, or collections.
  3. Legal Advice & Prevention: Consult a lawyer for guidance on lawsuits and consider increasing your insurance liability limits for future protection.

How Car Accident Compensation Works

To understand what happens if you don’t have enough assets to pay for a car accident, it helps to understand how a typical car accident works.

  1. Let’s say you crash into another vehicle from behind. You are 100% at fault for the accident.
  2. As the at-fault driver, you are required to cover the cost of repairing the damaged vehicle and paying the medical bills of the other driver and passengers. Depending on the situation, you may also need to cover lost wages, ambulance expenses, and other costs incurred as a result of your actions.
  3. Most states require liability insurance to cover these expenses. Typically, liability insurance includes coverage for property damage (like vehicle repair costs) and bodily injuries (like medical bills).
  4. If you had a minimum liability insurance plan, then you might only have $10,000 to $50,000 of liability coverage, depending on your state. This is sufficient for covering minor accidents with mild injuries, but it may not be enough to cover larger accidents with multiple injuries or extensive car damage.
  5. After your liability insurance runs out, you are still responsible for paying any leftover damages resulting from the accident. If the other vehicle has $15,000 worth of damage, for example, then your insurance could cover the first $10,000, forcing you to pay the remaining $5,000 out of pocket.
  6. After your cash and assets run out, you’re still responsible for paying any leftover damages. At this point, you could agree on a settlement, agree to have your wages garnished, declare bankruptcy, or become “judgment proof.”

A car accident lawyer can work with you to determine the best option for your situation. Lawyers could argue the other driver was partially at fault, for example, or negotiate a lower settlement amount in other ways.

You May Become “Judgment-Proof” If You Don’t Have Enough Assets

If you don’t have enough assets to cover the cost of an accident, then you could become “judgment-proof.

Becoming judgment-proof means you cannot pay a debt. The court agrees you owe the money but recognizes you cannot pay, so you become judgment-proof.

Becoming judgment-proof may sound good – but you still owe the money. After you become judgment-proof, any money you cannot pay after a car accident simply becomes another type of debt. Typically, this debt is sent to a collection agency, and that collection agency will use various methods to collect the debt.

You Could Declare Bankruptcy to Erase Debt

If you’re facing a large car accident settlement payment and don’t have sufficient assets to pay, then you could declare bankruptcy.

Declaring bankruptcy can effectively erase debt from lawsuit judgments. Unlike student loan debt or tax debt, which is difficult to erase through bankruptcy, lawsuit judgment debt generally disappears after bankruptcy.

However, many lawyers advise against declaring bankruptcy after a singular debt – like a car accident settlement. It may or may not be the right option for you.

You Could Agree to a Settlement

When someone sues you after a car accident, they want to receive compensation from you. In many cases, the injured party works with you to develop a settlement plan.

You might agree to pay a lower amount than initially owed, for example. If you were sued for $1 million but only have $150,000 of assets, for example, then the injured party could agree to a $150,000 settlement.

Let’s say you hit someone’s vehicle and cause serious injuries and vehicle damage. The other party has $500,000 of damage for which you are liable. However, the injured party knows you have zero assets. In this situation, they could file a lawsuit against you and saddle you with $500,000 of debt. However, their chances of ever receiving that money are low, as they don’t have $500,000 to pay the debt. In this situation, the injured party could be motivated to agree to a smaller settlement to receive some compensation for the accident.

Courts Seize Bank Accounts, Wages, Personal Property, and Real Estate to Cover Debt

You may not have enough cash to cover debt from a car accident. However, the injured party can seize your assets and claim the debt in multiple ways, including via employment, bank accounts, real estate, and other assets.

Bank Accounts & Assets: First, courts look at your bank accounts and assets. Banks cannot seize retirement accounts (like 401ks or IRAs). However, they can seize money from your checking, savings, and non-registered investment accounts. Depending on the size of the settlement you owe, all of these accounts could be liquidated to pay your car accident debt.

Employment: If you lack the funds to pay the injured party today but are employed, then your wages could be garnished. A collection agency or the injured party’s lawyer will take some of your wages from each payment to pay for the settlement. Your wages continue to be garnished until the debt is paid. Note: Social Security, disability income, and minimum wage jobs are considered off-limits. However, if wage garnishment is approved, you could lose up to 25% of your wages each month towards the settlement.

Personal Property & Real Estate: Your personal property, real estate, and other assets could be seized. Many states have laws protecting your home and personal vehicle from being seized. However, any other property could be seized and sold to pay for your debt.

Talk to a Lawyer to Determine Your Best Option

Car accident settlements can be confusing and expensive. You may also need to make one of the most important financial decisions of your life.

For all of these reasons, it’s important to talk to a lawyer to determine the best path forward.

Many lawyers advise against declaring bankruptcy in response to a singular debt – like a car accident settlement. However, if you have lots of debt, then bankruptcy could be an option.

Ultimately, a lawyer can analyze your situation, negotiate with the injured party, and fight on your behalf to achieve the best possible resolution to your situation.

Consider Raising Liability Limits

Consider raising your liability limits to avoid this situation in the future. With higher liability limits, your insurance can cover more of the costs of the accident. Many experts recommend carrying $1 million of liability insurance or more, for example, to protect your assets.

Most states require under $100,000 of bodily injury and property damage liability insurance. Some states don’t even require liability insurance.

In most cases, however, it’s in your best interest to buy sufficient liability insurance to cover your assets. Otherwise, your assets could be seized after an at-fault car accident.

It may cost only a few dollars per month to raise liability insurance limits. Contact your insurer.

Final Word

If you are the at-fault party in a car accident, then someone can sue you regardless of your ability to pay.

During a car accident settlement, your bank accounts, personal property, and other assets could be seized to cover your debt. Once your car insurance limits and assets have been exhausted, you could face wage garnishment or other consequences – or even bankruptcy. Alternatively, you may be able to negotiate a lower settlement with the injured party based on your inability to pay.

If you’re being sued for a car accident and don’t have enough money, then talk to a lawyer to determine the best path forward.

James Shaffer
James Shaffer James Shaffer is a writer for InsurancePanda.com and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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