Filing for Bankruptcy After a Car Accident Lawsuit

Do you have car insurance and wondering why a personal injury attorney is threatening you with a lawsuit for a car accident? Can bankruptcy eliminate a car accident lawsuit? Will that stop the attorney from contacting you? Let’s dig deep into this issue.

Updated on January 24, 2025.

Key Points:

• If you don’t have enough auto insurance coverage, you could get sued for a car accident if you are at fault.
• If you don’t settle the car accident lawsuit, your driver’s license will get suspended.
• The Department of Motor Vehicles may require you to deposit a certain amount of money to keep your driver’s license. This is known as an SR22.
• Bankruptcy can be filed at any time to wipe out a personal injury lawsuit.

Unfortunately, car accidents happen. But even with auto insurance, a car accident lawsuit is still likely. The reason why is simple enough. The policy limits on your car insurance policy may not be enough to cover the damages from the accident.

For example, if your insurance policy has coverage for $30,000, but the person you crashed into has $100,000 in damages due to injuries and medical bills, they can sue you for the $70,000 difference. They even have multiple ways to collect the money from you.

State laws vary on the minimum amount of required car insurance. For example, in Florida, the minimum amount of coverage is $10,000 while in Georga it’s $30,000.

The Result of the Personal Injury Lawsuit

A judgment is entered once the lawsuit has been finalized. The second phase of the lawsuit is to collect on that money judgment. Depending on the facts of your case, the petitioner or plaintiff which is the party that filed the auto accident lawsuit against you, could seek to garnish your wages, freeze your bank accounts, and place a lien on other assets you own whether it’s your home or other vehicles.

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Ultimately, your driver’s license will also be suspended and if you get caught driving without a license you now face criminal liability.

Sometimes, the plaintiff is the driver’s insurance company that is seeking reimbursement. If the insurance policy has sufficient coverage, then the case is settled between the lawyers of both insurance companies. But if not, and the lawsuit is against you to seek the difference or the amount that exceeds the insurance policy, then your options are limited.

What are Your Options if You Get Sued Because of a Car Accident

There are really two options once the judgment has been entered against you. You will either pay back the judgment or you won’t pay back the judgment.

If you pay back the judgment, a payment arrangement can be made with the plaintiff’s attorney to avoid having your driver’s license suspended or to have your license reinstated. You would sign a settlement agreement detailing the amount owed and how the payments will be made.

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Note that the driver’s license suspension is reinstated if payments stop. If a payment plan is impossible, then you should proceed to file for bankruptcy.

Do You Need an SR22?

An SR22 is when the Department of Motor Vehicles in your state requires that you deposit X amount of funds to cover the amount not covered by the insurance policy.

For example, if after your insurance policy has paid out the maximum benefits, but there is still $20,000 that needs to be paid to the plaintiff, the state would ask that deposit $20,000 which keeps your license active. I compare it to a bond and a criminal case we’re a defendant is out of jail while the case is pending because bond was posted. The SR22 is similar because now you are out driving, thanks to the bond that you posted. But if you are going to file for bankruptcy, you can skip the SR22 process.

Filing Bankruptcy to Wipe Out the Car Accident Lawsuit

To clarify, many times, I’ve heard clients say that filing for bankruptcy has no effect on a judgment. A lie no doubt invented by creditors because it is simply not true. Bankruptcy would absolutely eliminate a judgment. Bankruptcy can be filed before the case, during the case, or even after it’s filed and a judgment is entered.

However, if you can’t afford the SR22 or a judgment against you, then consider filing for bankruptcy to eliminate that judgment and avoid your license being suspended. Depending on which chapter in bankruptcy you qualify for, it could be either Chapter 7, Chapter 11, or Chapter 13 bankruptcy.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Updated on September 23, 2024.