What Happens if You Are Sued, and You Don’t Have the Money

someone sues you and you don’t have money

Being sued is a scary experience. It can take up a lot of your time and put you in serious financial jeopardy.

Our goal in writing this article is to lay out some basic parameters, walk through a few scenarios, and provide good information for people who are being sued, but may not have the money to pay for it. In the following, we’ll touch on…

What Happens if You Lose a Lawsuit and Can’t Afford to Pay?
Different Settlement Recovery Approaches
Declaring Bankruptcy Due to a Lawsuit Settlement

Let’s get started…

What Happens if You Lose a Lawsuit and Can’t Afford to Pay?

Although it’s not a very wise decision, it is possible to sue someone, even if the person being sued has no valuable assets. However, most people investigate the possibility of collecting from the individual they are considering suing before they go through the time consuming and expensive process of a lawsuit.

The most common scenario is that someone brings a lawsuit against another person that exceeds the money they have to pay it. If you don’t have the resources to pay a claim or judgment made against you, you are what lawyers refer to as “judgment proof”.

This may sound great, but it’s not quite as invincible as it sounds.

According to attorney Gil Siberman, in most legal jurisdictions in the United States a judgment you cannot pay simply turns into another form of debt [1]. As such, it will typically get turned over to a collection agency which will do what it can to be reimbursed for the debt.

Debt from a lawsuit can usually be erased if you declare bankruptcy. Fortunately, if you’re in this situation – this type of debt, lawsuit judgements, is not like a student loan or tax debt that is extremely hard to get rid of (even through bankruptcy).

Another piece of good news is that if someone is suing you knowing that you lack the assets or any form of insurance to fully pay the judgement, your odds of settling for a lower amount increase.

A good attorney can advise you on what steps you should take, but be aware that if you lose a judgment and end up unable to pay your attorney they can easily become another creditor to add to your list.

Different Settlement Recovery Approaches

If you’ve lost a lawsuit, it is likely that the other party will pursue you for recovery of the judgement if you have any of the following.

  1. Employment
  2. Any bank accounts or assets
  3. Own real estate

1. Employment – If you are employed but lack the funds to fully pay a judgment against you, the opposing attorney or collection agency will likely try to take some of your wages through a process called wage garnishment.

If you earn minimum wage or get social security/disability income these are all considered off limits to creditors, but if your income does not fall into any of these categories creditors can take up to 25% of earnings to recoup what they are owed.

2. Bank accounts and assets – Your bank accounts are generally the first place a creditor will look to retrieve money for your debts. Retirement accounts such as a 401ks are protected, but checking, savings and investment accounts are all subject to be liquidated to pay such a debt.

Future money is not excluded from this situation either. If you are currently insolvent but that could change in the near future, expect creditors to be after whatever money there is to be had. This may be true if, for example, you’re a student soon to graduate and begin working.

3. Personal property – Every state has different rules about what is protected from creditors and what is not in regards to personal property. In most cases, homestead laws protect your home or property. Your vehicle is also generally protected from creditors (especially true if you use it for commercial purposes).

Declaring Bankruptcy Due to a Lawsuit Settlement

Bankruptcy is a word that frightens many people, but it needn’t be viewed that way necessarily. If you declare bankruptcy under Chapter 7 of the federal Bankruptcy Code, the right of your creditors to collect from you is cut off [2]. Sometimes bankruptcy is something people get forced into, but sometimes it is a smart financial move to protect yourself.

Bankruptcy is generally not advised as the response to a singular debt. Consider your total financial snapshot, the scope of relief that bankruptcy offers, and the non-bankruptcy alternatives. In many cases, an experienced attorney or accountant will be instrumental in making this determination.


If you have lost a lawsuit or someone has received a judgment against you, your position may feel hopeless. Although it is a difficult one, there are always things you can do. Being informed and proactive is the best starting point. Let’s review.

    • Being able to pay is not a factor in whether or not someone can sue you. If they win the lawsuit and you can’t pay the judgment, the judgement turns into a debt you owe.
    • This debt generally gets turned over to a collection agency which will try to garnish your wages or pursue whatever assets that are not protected by law.
    • One way out of this situation is to declare bankruptcy. It’s generally inadvisable to do this for one debt, but can be very beneficial if you have multiple debts. Consult with trusted professional advice before proceeding.


[1] Quora 
[2] USCourts.Gov

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