Losing Your Home Over a Car Crash? It Can Happen, But You’ve Got Options
Remember when we were teenagers and thought we were invincible? We’d hop in a car with barely a second thought, blast the radio, and hit the road without a care in the world.
Those days are long gone. Now we’ve got jobs, families, mortgages – and a heck of a lot more to lose. One mistake behind the wheel can alter the entire trajectory of your life if you caused an accident that hurt someone. You could end up losing your assets – even your home – paying heavy fines or spending time in jail.
Let’s chat about how to make sure one tragic accident doesn’t rob you of everything you’ve worked so hard to build. I’ll walk you through exactly what can happen step-by-step, then we’ll talk about smart ways to protect yourself. I know talking about worst-case scenarios isn’t fun, but a little knowledge can help you sleep better at night.
When You’re At-Fault in a Collision, Legal Liability Hits Hard
If another driver, passenger, pedestrian or cyclist suffers injuries or property damage because of an accident you caused, you can be held legally liable to compensate them. It’s called compensatory damages – essentially forcing you to pay for all losses you caused due to your actions (or lack of action).
You might also face punitive damages intended to punish conscious wrongdoing. For example, if you caused an accident while texting and driving despite knowing the risks that can show blatant negligence.
The specific factors that determine your liability include:
- Negligence – failure to act reasonably and prudently as a driver
- Burden of fault – the investigating officer and insurance companies assess who was predominantly at fault based on evidence and testimony
- Extent of damages – bodily injury claims and vehicle repairs or replacements quickly add up
Keep this in mind – you’re nearly always deemed at fault if you rear-end another vehicle because you failed to stop safely. Even if the driver ahead slammed brakes suddenly, the legal burden rests heavily on you.
Buckle Up, It’s Lawsuit Time – What Happens Next?
Here’s how a typical car accident injury lawsuit goes down after a collision you inadvertently caused:
- The other driver (or their insurance company) sends a demand letter asking you to pay for damages related to medical bills, lost wages, vehicle repair costs and other losses
- If you refuse or your insurer denies the claim, the injured party can file a lawsuit against you within 1-6 years in most states – this clock starts ticking on the accident date
- You’ll receive official notice you’re being sued – don’t ignore this!
- Your insurer gets involved to defend you in court and assign legal counsel
- Extensive evidence gathering, testimonies, negotiations between both legal teams takes anywhere from several months to a couple years
- Finally, a trial date is set unless a settlement is reached sooner
If the case goes to trial and the verdict goes against you, the judge or jury decides what you owe based on a few factors:
- Economic damages – quantifiable out-of-pocket losses like medical expenses and lost wages
- Non-economic damages – harder to quantify compensation for pain and suffering
- Pre and post-judgement interest – 6-10% interest charged on total damages owed
Here’s the scariest part – if the judgement far exceeds your liability coverage limits, you’re personally on the hook for that unpaid portion, known as an excess judgement. And yes, the plaintiff can pursue your assets like your home equity to force collection.
A Car Accident Judgment Can Drain Your Bank Accounts and Home Value
Perhaps you’re wondering, “how much coverage is really enough?” That depends on your personal financial situation and assets at risk, like:
- Savings and investment accounts – these liquid assets are easy to seize, unless held in protected vehicles like 401ks or IRAs
- Home equity value – especially scary since homes are often our biggest assets, if you have over $100k, $200k or more in equity
- Retirement accounts – these enjoy extra protection but can still be tapped in some cases by relentless attorneys
Through legal avenues like wage garnishment, account seizure or placing a lien on your home, the plaintiff can pursue repayment of excess judgements by forcing the sale or transfer of your assets in a court-mandated execution sale.
- Some states have homestead exemptions allowing you to protect up to a portion of your home’s value, but don’t rely too heavily on these protections.
The moral of this ugly story – a serious car accident can drain your financial accounts, sink your credit score, max out your insurance coverage and, in a worst-case scenario, leave you out on the streets.
Get Liability Insurance Aligning With Your Assets – Or Else!
Carrying only the minimum liability coverage mandated by your state – generally between $10k and $25k – is asking for financial disaster if sued after causing an accident. Those shockingly low minimums would barely cover minor fender benders today, much less major injury lawsuits.
Instead, align your liability limits with your personal net worth and assets, especially home equity:
- Home value under $200k? Get at least $250k per person / $500k per accident
- Home value over $200k? Get at least $500k per person / $1M per accident
An umbrella insurance policy gives you additional liability coverage that stacks atop your regular car insurance. These extra protection layers are surprisingly affordable too, less than $300 per year in most cases.
Failing to carry adequate coverage equal to your assets at risk sets you up for catastrophic out-of-pocket losses – having to pay judgements from your own pocket because your insurance taps out too soon.
Fighting & Settling Injury Claims Wisely
If you do get sued after an at-fault accident, cooperating reasonably with your insurance adjuster is key. Don’t admit fault prematurely or try to handle negotiations yourself – that’s their job, and your policy requires your involvement anyway.
Be smart if offered a settlement within coverage limits before trial – carefully weigh your legal Position before rolling the dice in court. Jury sympathy for injured plaintiffs may stick you with an excess judgement despite your lawyer’s best efforts.
Safeguard Your Assets Before Disaster Strikes
Instead of holding your breath and praying you’re never the at-fault driver in an accident, explore smart asset protection strategies:
- Work with an attorney to set up an asset protection trust making certain property untouchable
- Transfer ownership of assets like your home or car to other trusted individuals
- Explore moving assets to states with better homestead exemptions like Florida or Texas which protect entire home values
- Use a home equity loan to tap your equity now, before it’s snatched later
It’s even possible to proactively bulletproof your assets using legal maneuvers before catastrophe strikes – but you have to be proactive about it.
When All Else Fails…Bankruptcy Saves The Day
Let’s say the worst happens – you cause a tragic accident with devastating injuries, get buried under massive lawsuit judgements, loot your accounts to pay and still drown in oppressive debt. As a last resort, filing personal bankruptcy may wipe the slate clean.
Here’s a quick glance at how it works:
- Chapter 7 bankruptcy erases eligible debt completely – including excess judgements. But you may have to surrender non-exempt assets.
- Chapter 13 bankruptcy establishes a 5-year repayment plan for debts. You get to keep assets but must repay creditors partially.
- Bankruptcy imposes a helpful automatic stay making creditors and lawsuits grind to a halt while your case resolves.
I’ll be straight with you though – bankruptcy torpedoes your credit and finances for years. But when it’s either your home or FICO score on the line, at least you’ve got options.
Let’s Circle Back to Our Invincible Teenage Years…
My friend, I hope reviewing this advice sparks proactive conversations with your insurance agent, attorney and family about properly protecting your assets in a worst-case accident scenario.
I know talking through frightening “what-ifs” isn’t fun, but would you rather stick your head in the sand while over-exposed to nightmarish outcomes? Heck no! Get educated to tailor your coverage and protection plan, so you can sleep easier at night, my friend.
Here’s the key takeaway: One tragic accident can happen in the blink of an eye. But losing everything you’ve worked your entire life for does NOT have to be part of that equation with proper planning!
Stay safe out there!