Being sued for money is always an awful experience, and it can induce a lot of anxiety and many overwhelming feelings of helplessness, especially if you’re not doing great financially in the first place.
But what do you do if you get sued and you have no money?
How are you supposed to pay the money if you don’t have it? Is there a way out of this situation? Would they take other things away from you instead?
Let’s get right into it!
Let’s start by clarifying whether or not they can actually sue you when you have no money. After all, it seems pretty pointless for a lawsuit to go through when there is no money to be paid, right?
Unfortunately, a lawsuit is judged on whether the money is owed, and not on whether the money can be paid and afforded.
So if the lawsuit wins against you, and they decide that you do indeed owe a certain amount of money, then you will have to pay it back, one way or another.
Okay, so you will have to pay the money you have been sued for, one way or another, even if you don’t have the funds. But you can’t exactly pay money if you don’t have any, so what would happen?
Basically, the money that you are supposed to pay will become a debt, and the amount will be turned over to a debt collector’s agency. They will be in charge of collecting the money from you, one way or another, as soon as you have it.
There are three main different ways in which they will collect this debt from you:
Through your employment:
If you can’t pay the amount of money stated by the lawsuit, but you are employed and therefore receiving money on the regular from your work, the debt collectors will take some of the money from you through a process that is called wage garnishment.
This essentially consists of them taking up to 25% of your wages, before you have the chance to receive them yourself, and it is a way of ensuring that part of your money goes towards paying off the debt.
However, if your income is minimum wage, or your income is from social security or disability, then these wages will be completely off-limits to the debt collectors, as they will be considered essential to your survival.
So if that is the case, you can rest assured that they will not take your money away and leave you to starve.
But any other wages, the debt collectors will take a percentage away.
Through any banks or assets that you have in your name:
The first place a debt collector will look for money is any bank accounts or assets that you might have in your name, that might contain money.
If you have a retirement account, this will be considered off-limits, and the debt collectors will not be able to retrieve money from it.
However, other accounts such as a savings account or an investment account will likely be liquidated, and the money will all go towards paying off the debt, whether you like it or not.
The same goes for any new money that you place into accounts under your name.
Through any real estate that you own:
If you have any real estate property that you own alone, this also might be subject to being liquidated in order to pay off the debt. However, the rules around this can vary from state to state.
Your main home will usually be protected, as you need a place to live, and the same will go for your main vehicle.
However, any other real estate properties that aren’t protected from debt collectors by law, will likely be liquidated to pay off the debt.
Living under the constant fear of a debt collector is pretty much a nightmare, so is there any way in which you can put a stop to the money you owe, due to a lawsuit, if you don’t have it?
The answer is yes! According to Chapter 7 of the federal Bankruptcy Code, you can declare bankruptcy due to the lawsuit, and if this is approved, the debt collectors will immediately be cut off from having any right to collect any money from you whatsoever.
This is usually done when there are several ongoing debts, rather than a single one, and it is not a solution that is often advised, as it will be thoroughly judged to determine whether it is true or not.
The bankruptcy code is essentially there to prevent truly bankrupt people from having even more money taken away from them.