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

George Simons | September 20, 2023

Edited by Hannah Locklear

Fact-checked by Patrick Austin, J.D.

Summary: When you get sued and you have no money, debt collectors can garnish your wages and seize your property to get the funds repaid. However, you may be protected by some of these collection methods, depending on which state you live in. SoloSuit can help you respond to your debt collection lawsuit and win in court.

Being served with a debt collection lawsuit can be extremely stressful, especially if you are already struggling to stay afloat financially. The prospect of going to court and defending yourself against a large debt collection company can be intimidating and even overwhelming. That fear is often exacerbated when you are down to your last dime and unable to pay if you lose the legal battle.

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What can happen if the debt collection company wins their lawsuit against you

You would expect a creditor or debt collector to sue you only after they have determined that you can pay. However, sometimes you find yourself in court knowing fully well that you can't afford to pay if you lose. Unfortunately, having no money is not a defense and that knowledge is essential if you find yourself facing a lawsuit.

Debt collection cases are all about the creditor or debt collector proving that someone owes them money according to a signed contract. Many debt collectors file lawsuits assuming that the debtors won't Answer the Summons, and as a result, lose the case by default.

Since default judgments last a long time, some creditors and collectors sue you because they hope you may be able to pay back what you owe in the future. Whatever the issue, losing a case when you can't pay can be a nightmare.

What happens if you lose a lawsuit and you don't pay?

If a judgment is entered against you, and you lack the financial resources to pay, the judgment becomes an additional debt that will need to be repaid. In many instances, the person or company suing you will seek compensation from you in one form or another. This may include:

Wage garnishment.
Bank account freezes.
Property liens.

Let's take a moment to break each of these methods down in detail.

Wage garnishment

One option potentially available to the plaintiff is initiating a wage garnishment. They prefer this option if you are gainfully employed and receiving non-exempt income from a job. A debt collector cannot access your income if you earn less than minimum wage or receive social security or disability. On the other hand, if you are paid more than minimum wage or have a salaried position, a debt collector could garnish up to 25% of your earnings.

It's important to note that wage garnishment laws vary by state. For example, the state of New York declares many types of income to be exempt from garnishment and other collection methods. The types of income include Supplemental Security Income, welfare, Spousal Support, Child Support, Unemployment Benefits, Disability Benefits, Veterans Benefits, and more.

Bank account freezes

In addition to wage garnishment, a debt collector who wins a judgment against you will likely try to liquidate funds maintained in your bank account or checking account. However, creditors cannot liquidate those funds if you have a retirement account like an account protected under ERISA, such as a 401K. IRA's are more vulnerable, but each state has rules governing whether they can be garnished to satisfy a debt. Nevertheless, the funds in your checking account could be accessed and drained to pay a portion of the judgment.

Property liens

Once they obtain a judgment, creditors and debt collectors can record a lien on your property at the deeds registry. In effect, they own part of your property because of the money you owe. They can also place a lien on your home if you have high home equity. The law regulates if and when a creditor can place a lien on your home. It's crucial to find out if you qualify for property lien exemptions, which vary by state.

What happens if you get sued and you have no money or assets?

You may feel that you don't have to worry about a judgment if you have no money or assets that are collectible. And you might be right. In fact, a lack of property and money can make you judgment-proof in some cases. However, that's not always the case, and being judgment-proof largely depends on your state of residence and its garnishment laws.

Even if you own nothing now, the creditor can come after you in the future. Remember that judgments are usually renewable, meaning they can be valid for many years. So if you plan to own property or earn money in the future, you're not immune to judgments.

Let's consider an example of judgment-proof.

Example: Mark, who lives in Florida, lost a debt collection lawsuit in 2010 but was unable to pay. It's been twelve years, but the judgment is still active because such a decision lasts 20 years in Florida. After 20 years, it is possible to renew it. If Mark gets a job paying more than minimum wage, or buys a property, the creditor can still put a lien on his property or bank account to pay his 2010 judgment.

What happens if someone sues you and you don't have the money?

It is important that you do not ignore a Summons for debt collection. Instead, 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 on the statute of limitation starts at the date of the last activity on the account. If the statute of limitations has expired, the creditor or debt collector cannot legally sue you. If you cannot prevent the case from going to court and you lose, you may still have a way out.

Attempt to negotiate with the plaintiff

If you lack the funds to pay the judgment in full, you could reach out to the plaintiff and try to negotiate a post-judgment settlement. This may be worthwhile since, at the end of the day, the plaintiff wants to receive some form of compensation. They may accept a lower amount or a payment plan so they can get the money back. Whether the plaintiff is willing to accept a lower amount or agrees to set up a payment plan depends largely on the creditor and the amount owed.

Consider bankruptcy

In many instances, if you are sued and lose the lawsuit, you may be in a position to file for bankruptcy, depending on the amount owed from the suit. The debt from a judgment can usually be erased if you take the proper steps to formally declare for bankruptcy. And it can provide the statutory protections for your personal property when you are being pursued by a debt collector on an adverse judgment.

For example, if you declare Chapter 7 bankruptcy, your creditors no longer have the right to try and collect from you (which can give you financial and psychological relief, since you should stop receiving hounding phone calls and correspondence).

Bankruptcy is generally not recommended if you are trying to address a single debt. Instead, bankruptcy should only be considered after conducting a thorough review of your finances, income, and debts.

How to prevent a default judgment

Consumers often bring a default judgment on themselves by ignoring the lawsuit. If you don't file an Answer with the court, you lose your chance to give an affirmative defense, and automatically lose the case.

SoloSuit has all the documents you need to respond to debt collection letters and lawsuits, force a suit out of court, and offer to settle. One of these documents may be what you need:

Debt Validation Letter: Send this to a debt collector after they contact you for the first time and before you get sued. This letter is a formal request for debt validation. If a debt collector cannot provide the proper documentation and evidence to prove that the debt is valid, they must cease collection efforts. This is a great way to not only prevent a default judgment, but also a debt lawsuit altogether.
Answer: The first step to winning a debt lawsuit is to respond with a written Answer. This document must be professional and follow legal formatting. SoloSuit's Answer form includes a section for your responses to each claim from the Summons and Complaint, a section for affirmative defenses, and a certificate of service.
Motion to Compel Arbitration: If you are being sued for a credit card debt, and there was an arbitration clause in your credit card agreement, you can file a Motion to Compel Arbitration and avoid having to go to court. If the court grants your motion, you will have the opportunity to discuss with an arbitrator and the debt collector. Often, arbitration can lead to a settlement that works for both parties.
SoloSettle: You may know that you owe the debt for which you are being sued, and you might have enough funds to pay some of it off in a lump sum. Many debt collectors are willing to accept a percentage of the debt as a settlement. SoloSettle makes it easy to start the negotiation process and avoid going to court. Be sure to start with a low offer so you have room to build on it.

If you need help on how to handle debt collectors and creditors, SoloSuit has all the resources you need. We'll answer all your questions and guide you along the way. Check out the video below to learn more about how to respond to a debt collection lawsuit:

What is SoloSuit?

SoloSuit makes it easy to fight debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

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>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate