What Happens If Someone Sues You and You Have No Money?

Getting served with a debt collection lawsuit causes major stress. You may already struggle to keep your head above water financially. The prospect of defending yourself against a large collection company feels intimidating and overwhelming.

Fear intensifies when you are down to your last dime. You wonder what happens if you lose the legal battle.

Having no money does not make you immune to lawsuits. Keep reading to understand your options and what debt collectors can actually do.

What Happens If You Are Sued and Cannot Pay?

You might expect creditors to sue only after confirming you can pay. Unfortunately, that is not always the case. Sometimes you find yourself in court knowing you cannot afford to pay.

Having no money is not a legal defense. Understanding this fact is essential when facing a lawsuit.

Debt collection cases revolve around proving you owe money according to a signed contract. Many collectors file lawsuits assuming debtors will not Answer the Summons. They count on winning by default.

Default judgments last a long time in most states. Some creditors sue you hoping you may gain the ability to pay later. Whatever the reason, losing a case when you cannot pay creates a nightmare scenario.

What Happens If You Lose a Lawsuit and Do Not Pay?

When you cannot pay a lawsuit judgment, it serves as enforcement through other collection methods.

The court may order a debtor’s examination upon request. A debtor’s examination is a hearing where the plaintiff asks questions about your income and assets. They then seek compensation through alternative methods.

Failure to attend a debtor’s examination leads to serious legal problems. You can face contempt of court charges.

Based on what they learn during your examination, collectors can pursue money through:

• Wage garnishment
• Bank account freezes
• Property liens

Each of these collection methods has specific rules and limitations.

Wage Garnishment

Plaintiffs prefer wage garnishment if you are gainfully employed. Debt collectors cannot access your income if you earn less than minimum wage. Social security and disability income are also protected.

If you earn more than minimum wage, a collector could garnish up to 25% of your earnings.

Wage garnishment laws vary significantly by state. New York declares many income types exempt from garnishment. Protected income includes Supplemental Security Income, welfare, Spousal Support, Child Support, Unemployment Benefits, Disability Benefits, and Veterans Benefits.

Check your state’s specific garnishment laws to understand your protections.

Bank Account Freezes

Debt collectors who win judgments will likely try to liquidate your bank account funds. However, creditors cannot touch retirement accounts protected under ERISA, such as 401K plans.

IRA accounts are more vulnerable to collection. Each state has rules governing whether IRAs can be garnished.

Funds in your checking account could be accessed and drained. Collectors can take money to satisfy portions of the judgment.

Property Liens

Once creditors obtain a judgment, they can record a lien on your property. They effectively own part of your property because of the money you owe.

Collectors can place liens on your home if you have high home equity. The law regulates if and when creditors can place home liens.

Property lien exemptions vary by state. You need to find out if you qualify for exemptions in your jurisdiction.

What Happens If You Get Sued With No Money or Assets?

Even if you own nothing now, creditors can pursue you later. Judgments are usually renewable, meaning they remain valid for many years.

If you plan to own property or earn money in the future, you are not immune.

Typically, the following assets are collectible if a judgment is entered:

• Real estate
• Vehicles
• Boats
• Jewelry
• Bank accounts

If you own none of these assets and have no money, you might be judgment-proof. A lack of property and money can make you judgment-proof in some cases.

Being judgment-proof largely depends on your state of residence and its garnishment laws.

If you plan to own any collectible assets in the future, watch out. With proper renewal, your future possessions might be at risk.

Example: Mark lives in Florida and lost a debt collection lawsuit in 2010. He was unable to pay at the time. Twelve years later, the judgment remains active because Florida judgments last 20 years. After 20 years, creditors can renew judgments. If Mark gets a job paying more than minimum wage or buys property, the creditor can still place a lien on his assets to satisfy the 2010 judgment.

What Happens If Someone Sues You Without the Money to Pay?

If you get sued and do not have money to pay, defend yourself anyway. The first step to defend yourself is filing an Answer to the Summons and Complaint.

Do not ignore a Summons for debt collection. File an Answer to preserve your ability to fight the lawsuit.

Check the statute of limitations on debt in your state. In most states, the clock starts at the date of last account activity. If the statute of limitations has expired, the creditor cannot legally sue you.

If you cannot prevent the case from going to court and you lose, you may still have options.

Attempt to Negotiate With the Plaintiff

If you lack funds to pay the judgment in full, reach out to negotiate. Post-judgment settlements are possible and sometimes advantageous for both parties.

The plaintiff ultimately wants to receive some form of compensation. They may accept a lower amount or a payment plan.

Whether the plaintiff accepts a lower amount depends on the creditor and the amount owed. Our partner Solo can help you negotiate a settlement that works for your budget.

Consider Bankruptcy

If you are sued and lose, you may be in a position to file for bankruptcy. The debt from a judgment can usually be erased through proper bankruptcy proceedings.

Bankruptcy provides statutory protections for your personal property when debt collectors pursue you.

If you declare Chapter 7 bankruptcy, your creditors lose the right to collect from you. You gain financial and psychological relief from hounding phone calls and correspondence.

Bankruptcy is generally not recommended for addressing a single debt. Consider bankruptcy only after conducting a thorough review of your finances, income, and debts.

How to Prevent a Default Judgment

Consumers often bring default judgments on themselves by ignoring lawsuits. If you do not file an Answer with the court, you lose your chance to present an affirmative defense.

Failing to respond means you automatically lose the case.

You have several options to respond to debt collection letters and lawsuits:

• Debt Validation Letter: Send this to a debt collector after they first contact you and before you get sued. Request formal debt validation. If collectors cannot provide proper documentation proving the debt is valid, they must cease collection efforts.
• Answer: The first step to winning a debt lawsuit is responding with a written Answer. This document must be professional and follow legal formatting. Your Answer includes responses to each claim from the Summons and Complaint, affirmative defenses, and a certificate of service. Our partner Solo helps you create a proper Answer document.
• Motion to Compel Arbitration: If you are sued for credit card debt and your agreement included an arbitration clause, you can file this motion. If the court grants your motion, you will discuss matters with an arbitrator instead of going to court. Arbitration often leads to settlements that work for both parties.
• Settlement Negotiation: You may know you owe the debt and have enough funds for a lump sum payment. Many collectors accept a percentage of the debt as settlement. Start with a low offer so you have room to negotiate.

Other FAQs About Getting Sued When You Have No Money

What Happens If You Win a Lawsuit and They Cannot Pay?

If you win a lawsuit and the losing party cannot pay, several outcomes are possible:

• Debtor’s Examination: You can request a hearing to ask about their income and assets. You can then find other ways to collect the money owed.
• Payment Plan or Settlement: The court may allow the debtor to set up a payment plan. You might negotiate a settlement for a lesser amount they can afford.
• Asset Liquidation: The court may order seizure and sale of the debtor’s assets.
• Garnishment: Take a portion of the debtor’s wages or bank account to pay the debt.
• Lien: Place a lien on the debtor’s property, such as real estate. The lien must be paid if the property is sold.

When you win a lawsuit, the court enters a judgment. Judgments often have time limits but can usually be renewed if the debtor still cannot pay.

If the debtor has no assets and no prospect of future income, you might not collect anything. If the debtor declares bankruptcy, you may not collect your judgment, especially for unsecured debt.

Can a Finance Company Sue You?

Yes, a finance company can sue you.

If you have a loan or credit agreement and fail to make payments, the company has the legal right to file a lawsuit. You can be sued for unpaid loan balances, missed car loan payments, credit card debts, or other financial obligations.

Finance companies seek court judgments for the amount you owe. If they win and you do not pay, the judgment could lead to wage garnishment, bank account levies, or asset seizure.

Can Someone Sue You for Money Without a Contract?

Yes, someone can sue you for money without a contract. However, their chances of winning in court are low without documented proof of the debt.

What Happens If You Are Sued for More Than You Have?

If you get sued for more than you have, negotiate a settlement to pay what you can afford. If your creditor refuses to settle, your wages could face garnishment and your assets may be seized.

What If I Am Being Sued for a Car Accident But Have No Assets?

If you have auto insurance, your insurance company should cover you up to your policy limit. The insurance company will also provide a lawyer to defend you.

If the claim exceeds your policy limits, you could be personally liable for the excess amount.

If you truly have no assets and limited income, you might be judgment-proof. Even if the other party wins, they may not collect any money from you.

Being judgment-proof does not prevent the lawsuit from proceeding or a judgment being entered. Plaintiffs sometimes settle for an amount covered by insurance or for less if they know collecting will be difficult.