What happens when you get sued for a huge amount of money?

Question

What happens when an ordinary person gets sued for something like $100 million? Do they have to give up any extra income they earn for the rest of their lives or something? Who pays the money in the end?

Answer 1

It all depends. If it's a tort claim and the defendant has insurance, even for a much smaller policy limit like $100,000 or less, his or her insurer has to defend the case.

If the defendant loses, or has no insurance and chooses not to defend, then we have to know what the case is all about.

If it's a claim that, if taken to judgment would not be dischargeable in bankruptcy -- like the Goldmans' judgment against O.J. Simpson -- then bankruptcy is not an option. But homestead laws in Texas, Florida and a few other states would still protect a homestead, regardless of value (but limited in acreage) against judgments.

In other states, protection against judgments is limited, sometimes VERY limited. 19 states have "tenancy by the entireties" which provides some protection (for the shares of both spouses in most of the 19, for the share of the innocent spouse in the rest). But in bankruptcy, community property is part of the bankruptcy estate. Trusts ("asset protection trusts") spendthrift trusts, Family Limited Partnerships and LLCs may provide some protection. Or they may not. There are too many variables to describe here. Go to the 1st site below for info on those.

In bankruptcy, exemptions vary by state. Until last year's changes in the law, homestead exemptions (in the few states that have them) were unlimited. Now they are severely limited, as are certain trusts.

But: filing for bankruptcy has certain strategic advantages for both tort plaintiff and tort defendant. For the plaintiff it limits homestead and trust exemptions; for the defendant (or plaintiff as the case may be) it can eliminate exposure to certain corrupt judges and court systems. (2nd link) The Bankruptcy Court can defer to another court, or it can decide claims itself. Also, when the bankruptcy proceeding is over, assuming the debtor qualifies for bankruptcy under new limits, the discharge means that s/he can start his or her life over free of debt.

In the notorious Lloyd's of London cases, where investors in a "risk free investment" found themselves scammed for millions of dollars by Lloyd's, and the courts all found in favor of Llloyd's, bankrutpcy was the only way out for many (see 3rd link)

Answer 2

When an ordinary person gets sued, one of three things happens. If that person has insurance, then the insurance company is obligated to defend (legal defense) the person and then in the event of a judgment or settlement, indemnify the person up to the amounts of the policy limits. If there is no insurance, thene the person will either put up a defense or default.

If they default, then the plaintiff (the person suing) will be able to enter judgment and then start collection proceedings.

If they defend them selves, either pro se (meaning without an attorney) or they hire an attorney, an Answer must be interposed and the legal process of discovery, pre-trial hearings, etc. starts. This will ultimatley lead to either a trial or a request to dismiss the action. If the case is not dicmissed and goes to trial, and the plaintiff wins, the collection activities start.

What if there is a judgment against you and you have no assets? That depends. If you have a business or own any (and I do mean any) property, almost all of it can be seized and sold off to pay the debt/judgment. If you have a job, you income can be garnished so that a portion of your earnings must be paid by your employer to the creditor. Want to get a loan for a new car or a home - forget it. You can pretty much rule out any credit opportunities if you have a judgment outstanding against you.

Is bankruptcy an answer? Maybe, but a judgment creditor stands in line ahead of unsecured creditors and while you probably will pay less that the entire judgment, you will still lose just about everything you have.

Is it all bad news? No. I am an attorney and sometimes am involved in cases where we find out that there is no insurance. Neither I nor my client wants to spend a great deal of rime and effort when there is no or insufficient insurance. In these cases, especially if the defendant approaches us early on, we would much rather settle the case and then move on. Maybe the case has a value of a half million dollars, but the defendant can put together a package of $50,000 now and then another $100,000 over the next two years. I'd strongly recommend settling and getting what we can, even though the case is actually worth more. (As an attorney, I tell my clients to realize not just what the case is worth, but what will be recovered. Yes, we can foreclose, garnish, attach, etc., but a reasonable settlement is often an acceptable alternative. The defendant avoids legal fees, and the case gets resolved before damage to your credit rating.)

Answer 3

Unless they have insurance to cover it, they owe it, because of this they claim bankruptcy in most cases. Even so some assets are protected from seizure by law.
The judgment is then handled as any other outstanding debt. Because bankruptcy law allows them to exempt their primary residence from liquidation they won't lose their home.

The court will decide who gets how much of any other assets at the point of discharge. Then the whole debt goes away. Future earnings are rarely considered for past due debts. This rule does have some new exceptions as passed by congress a few years ago. The court may force the debtor to refinance their home to pay part of the debt.

Answer 4

You can't get blood out of a turnip. At least where I live, a civil suit cannot take your home, vehicle, tools, etc., so if you don't have any money there is nothing to take. The other party may have the judgment, but will never get the cash.

Answer 5

If would be difficult for them to ever see that kind of money out of almost anyone. Maybe *some* kind of money out of people who were actually profiting to some extent...but that? Doubt it. Mostly it's a big scary number to overpower the threat and make the problem go away.

Answer 6

usually if your getting sued for something, there is an insurace that you have covering it...but if for some reason there isn't they can't take what you don't have.

Answer 7

1

Answer 8

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Answer 9

do a houdini act