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Can You Be Sued if You’re Broke?

ELI5: Negligence

Some people believe that only rich people get sued—but is that true? 

How Lawsuits Work 

Before we answer that, we need to back up a bit. When a personal injury claim is filed, it doesn’t start out as a lawsuit. In personal injury claims, the law firm representing the plaintiff will file a claim with the insurance company of the defendant. The lawyers representing the plaintiff and the insurance  representing the defendant will attempt to negotiate a settlement for the plaintiff. This settlement is the dollar amount that’s paid to the plaintiff. The settlement is supposed to cover the damages that the plaintiff sustained due to the defendant’s negligence. The settlement will typically be within the coverage of the policy purchased by the defendant. Only if the parties cannot reach an agreement, will a lawsuit be filed, which may result in the parties  going before a judge and having a jury decide how much compensation the plaintiff will receive, if any at all. To initiate the lawsuit, the Plaintiff must file a formal complaint with the Court, and serve notice of it on the defendant. Only then does it  become a lawsuit. The Defendant’s insurance company has an obligation to inform the Defendant of the claim against them, and to act in the best interest of their insured, which means not unnecessarily exposing them to the risk of a verdict or decision in excess of their insurance policy limits. 

Source of Recovery 

Since the goal of lawsuits and claims is to compensate the injured party, there needs to be a source of recovery. A source of recovery is, in short, a source of money. The most common source of recovery is the Defendant’s insurance company- this could be your auto insurance, homeowners’ insurance, business insurance, or professional liability insurance (think insurance the doctor has in case he screws up your procedure). When you pay for insurance, you’re paying them to cover the cost of any damage you cause in the event you cause are negligent or cause an accident. When it comes to lawsuits and personal injury claims, you can think of a source of recovery as an individual or entity that has the financial means to pay the settlement or judgment. But insurance companies aren’t the only source of recovery. People can also be a source of recovery, and so can businesses. However, the insurance company is usually the source of recovery, especially when it comes to car accidents. 

What If There’s No Insurance? 

Let’s say you were injured in a car accident due to the negligence of another driver, however, they don’t have insurance. If you’ve got an uninsured motorist policy, your insurance could cover the cost of your injuries. That doesn’t mean the other driver gets off without any consequences. Your insurance company, that stepped in and paid for your damages, will want to collect from the individual who caused they damage. They will likely file a lawsuit against that person, and work to recover what they paid because that person was not insured. That could mean that the work to get a judgment to have the wrongdoer’s wage’s garnished from their paycheck, or that they collect against their assets (like home or cars). You could also sue them personally, assuming the person who caused your injuries actually has enough assets to cover the cost of your injury-related expenses. This is less common than you may think. Most people do not have the assets to cover a judgment when they aren’t paying for insurance. People that pay for insurance typically do that because they have assets they want to protect. Most people do not have the financial resources to pay the settlement or judgment against them. Almost every personal injury attorney works on contingency, meaning they don’t get paid unless they recover a settlement for their clients. As a result, they usually can’t afford to take cases that don’t have a source of recovery. Even if an attorney did take your case, a judgment in your favor wouldn’t do anything for you if the person you sued didn’t have the financial resources to pay the judgment. This is also why it’s so important to carry uninsured motorists insurance. You may need to rely on your own insurance if the other person doesn’t have any. 

What Assets Can Be Seized? 

In some cases, a defendant can be ordered to liquidate assets in order to satisfy a judgment, or an excess judgment. It would be unusual for a person to be ordered to sell their primary home or vehicle. However, if you have land, secondary homes, secondary vehicles, investment accounts, or items of significant value, you may be ordered to liquidate those in order to pay a judgment. Alternatively, as mentioned, the judge can order your employer to withhold some of your paycheck to send to the person or entity with the judgment. Even the aforementioned would be somewhat unusual, especially if the person isn’t wealthy to begin with—but it is still possible. Carrying homeowner’s insurance, business insurance, and car insurance can prevent something like this from happening to you. 

Are You Really Judgment Proof? 

There’s a common misconception that you cannot be sued if you don’t have a pot to cook ramen in, therefore, it’s okay to skip out on paying for car insurance since nobody can collect from you anyway. This is untrue. While most personal injury attorneys aren’t going to sue a person who doesn’t have any financial resources, the insurance company probably still will, which is why driving without insurance is never a good idea. If the person you injure has an uninsured motorists policy that pays for their injuries, their insurance company can—and often do—garnish wages in order to recoup the cost of your negligence. There can also be criminal and administrative consequences for driving without insurance, like having your car impounded or losing your driver’s license. 

 

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