The average net worth in the U.S. is anywhere from about $183,000 for those under 35 to nearly $1.8 million for those over 65. Because of this, many Americans have a lot to lose when facing lawsuits.
So, what are the worst-case scenarios of lawsuit damage? Believe it or not, being sued and losing your case in court could be even worse than you imagine. It could, of course, lead to financial hardships, but it may also impact your health, your career, and more.
Keep reading to learn more about the impact a lawsuit can have on your life.
Financial Ruin: The Ultimate Impact
Losing a lawsuit will affect your finances first and foremost. You’ll need to make a lump sum payment to pay off a lawsuit judgment or set up a payment plan.
These aren’t the worst-case scenarios for those who lose lawsuits, either, as things can take an even uglier turn if you don’t have enough personal wealth to pay off a lawsuit judgment. Here are three terrible financial situations you might land in.
Bankruptcy As a Consequence
Filing for bankruptcy doesn’t come with the same stigma it used to since it has become more common. Over 430,000 non-business bankruptcies were filed in 2023 alone.
Still, filing for Chapter 7 or Chapter 13 bankruptcy after a lawsuit is no picnic. It can lead to credit damage, making it virtually impossible to buy a home, a vehicle, and other high-priced items anytime soon.
Asset Seizure and Liquidation
In the worst-case scenarios of lawsuit damage, you might not have enough money to pay off a lawsuit judgment, but if you have other assets, you will likely have to sell them to cover the cost of a lawsuit judgment. Some assets you could have seized and liquidated include:
- Jewelry
- Vehicles
- Real estate
- Cryptocurrency
- Stocks
- Bonds
- Cash
- Businesses
- Investment portfolios
- Intellectual property
Parting ways with your prized possessions won’t just hurt your financial standing, either. It can also bruise your ego if you lose everything you own and fracture your relationships.
Insurance Coverage Limitations
The costs associated with auto insurance and other types of insurance have risen dramatically as of late. Many insurance companies have blamed lawsuits and their financial obligations to customers who have been sued for rising rates.
However, this is just one way lawsuits impact the insurance industry. Some insurance companies also place coverage limitations on customers who have been sued. This could leave you with less insurance coverage than you would like.
Personal and Emotional Toll
Financial ruin is only the first side effect of losing a lawsuit. Next, let’s look at the personal and emotional toll it can take.
Loss of Reputation and Livelihood
Losing a lawsuit can carry a reputational risk. Some people might start looking at you differently after a lawsuit, especially if alarming details emerge.
Business owners who lose lawsuits, in particular, often take hits to their reputations following lawsuits. You might find it difficult to keep a business afloat if you and your company are ever involved in one.
Emotional Distress and Psychological Impact
Being sued can wreak havoc on your emotions. It can cause anxiety, stress, and in extreme cases, post-traumatic stress syndrome.
You might also suffer the immense psychological impact of going through a lawsuit, especially if things don’t go your way in court. You may wonder how you ended up in such a bad situation and wish you had taken different steps to steer clear of legal trouble.
Strain on Relationships
Losing a lawsuit can put a big strain on relationships in a couple of ways. It can end a relationship if the person who sued you was someone you were close with before.
It can also cause issues between you and your significant other or a business partner, even if they weren’t the one who filed a lawsuit against you. The stress accompanying a lawsuit can cause cracks in relationships and lead to their dissolution.
Business Implications
Running a business is stressful enough in and of itself, even when you remove the potential for litigation from the equation. Reports have revealed that about three-fourths of entrepreneurs worry about their mental health under normal circumstances, so you can probably guess how much harder things are for them following lawsuits. Here are other implications that showcase the worst-case scenarios of lawsuit damage for business owners.
Operational Disruption
If you own a large business with plenty of employees, you might not have to worry about experiencing a business disruption when dealing with a lawsuit. But if your business is on the smaller side, you might have no choice but to shut it down for at least some time when you’re being sued to attend meetings with your attorney and court hearings. This can confuse customers and eventually hurt your bottom line.
Loss of Customers and Market Share
You’ve worked extremely hard to market your business and bring in new customers to keep your company trending in the right direction. But all it takes is one lawsuit to lose them.
If you lose a lawsuit that doesn’t portray you and your business in a very good light, customers could leave for another business in your area. This can affect your market share and make it tough to remain open.
Legal Costs and Financial Burden
If nothing else, the legal expenses that come with fighting back against a lawsuit filed against your business can end up being astronomical. These expenses can start at as low as $3,000 on average, but they can also clock in at well over $250,000 in some cases.
Industry-Specific Risks
About 43% of business owners admit they’ve been threatened with lawsuits. Those in certain industries are more susceptible to lawsuits than in others. Here are a few examples.
Professional Malpractice
Healthcare professionals are always at risk of facing medical malpractice lawsuits. The American Medical Association reports that about one-third of doctors have been sued for malpractice during their careers.
Product Liability
In 2013, over 3,300 product liability lawsuits were filed in the U.S. Over the next decade, that number jumped to over 5,800. If your business sells products, you’re at an increased risk of facing this type of lawsuit.
Environmental Damage
The environment has become a much bigger concern for many Americans than it once was now that almost two-thirds of people believe climate change is affecting their communities. If you own a business that pollutes the environment, you may face litigation at some point.
Prevention and Mitigation Strategies
Simply trying not to worry about the worst-case scenarios of lawsuit damage isn’t a solid strategy for preventing yourself from landing in one. Here are some better tactics to help you avoid lawsuits and their consequences.
Risk Assessment and Management
If you’re taking risks regularly these days — which can include doing anything from driving a vehicle after having a few drinks to starting a business that sells cheap, untested products — eliminating them can minimize the chances of you facing a lawsuit. Work on pinpointing the risks in your life and limiting them.
Insurance Coverage Analysis
If you’re sued after, say, a car accident, would your current car insurance policy provide enough coverage? If you’re not sure, performing routine insurance coverage analysis can shine a spotlight on any issues that might exist.
Do this with all your insurance policies. It can uncover instances in which you’re underinsured, leaving you open to the worst-case scenarios of lawsuit damage.
Crisis Management Planning
If a crisis were to impact your company, how would you react? If you don’t have a crisis management plan, you might make a bad situation even worse and leave your company at risk of facing litigation.
Come up with a plan that includes the five “Ps” of crisis management:
- Predict
- Prevent
- Prepare
- Perform
- Post-Action
You’ll sleep better at night knowing your business has a plan like this to fall back on.
Contact Us To Find Out How To Protect Your Assets From Lawsuits
Blake Harris Law can provide one more tool to help you avoid the worst-case scenarios of lawsuit damage. Asset protection can keep your personal possessions safe if you’re ever sued. Reach out to us to learn more.
