Yahoo Finance 7 Ways Getting Sued Can Destroy Your Finances — And How To Prevent That
Getting sued. You may feel like this could never happen to you because you don’t willfully do anything wrong. But you never know. The odds aren’t tremendously in your favor. According to One Legal, there are more than 40 million lawsuits filed every year in the U.S.
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What happens if you get sued? In what ways can it destroy your finances and how can you prevent damage?
(Not getting sued? Here are nine other ways you can wreck your finances.)
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It Could Interfere With Your Professional Life
As Larry Bassuk, the co-founder and president of Idea Financial / LevelEsq, puts it, once you get sued, the world is watching. This is because most legal cases go public. This alone can disrupt your finances if your boss or a prospective hiring manager gets wind of the lawsuit.
“Getting sued puts you on the world map, so to speak,” Bassuk said. “The internet has a long memory, and typically picks up court docket information. Getting sued will raise a lot of questions.”
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You May Have to Let Investors and Bankers You Work With Know About the Lawsuit Against You
If you are sued, you may have contractual obligations to notify people you work with, depending on the situation.
“For example, your investors, bankers, partners and auditors,” Bassuk said. “This can trigger a (chain) reaction you must prepare for.”
You’re on the (Bad) Radar of Credit Bureaus
Like people, if so inclined, credit bureaus are watching you — and not in a good way.
“An active lawsuit will create a flag in the data companies and people use to evaluate you,” Bassuk said. “For example, many ‘scores,’ some of which you don’t know about, can be negatively impacted. Along those lines, if you are trying to obtain credit, an active lawsuit may negatively impact the process.”
Lawyers Are Expensive
No question about it: When you get sued, you need a lawyer, period. But gosh they cost a lot of money, especially if you’re going with a reputable one (which you should).
“Without one, you might as well just throw in the towel and acquiesce to every demand made by the person suing you (even if the allegations are false),” said Justin Leto, CEO and co-founder at Idea Financial / LevelEsq. “And lawyers are costly. They bill you by the hour, and those hours can add up fast.”
Exactly how much might you spend on fighting back when being sued? A fortune.
“The cost of legal defense is probably the most immediate damage; with some defense attorneys’ hourly billing rates exceeding $1,000 per hour, the cost of the defense can be ruinous to anyone’s budget,” said John Wood, founding attorney at Grant Park Legal Advisors. “This leads to secondary issues with credit. Many will have to turn to their credit to pay for legal services, causing their credit utilization to rise and reducing their credit scores.”
Lawsuits Cost You Time, Which Can Cost You Money
Not only do lawsuits eat up your funds, they eat up your time — which can also cost you money, since you may have less time to generate income.
“Lawsuits require your time,” Leto said. “You must work with your lawyer, prepare your defense, give sworn testimony, attend hearings and trials, and devote your time to your defense. All of this can be very time-consuming and detract from your ability to do your work and spend time with your family.”
Loss of Assets
When legal fees reach staggering highs, you may be forced to liquidate assets.
“You can end up spending a lot later on to replace those assets,” said Erika Kullberg, a personal finance expert and founder at Erika.com.
Increased Insurance Premiums
“In some cases, insurance providers may increase your premiums after a lawsuit,” Kullberg said.
How To Protect Yourself
Have Liability Insurance
You need to protect yourself should a lawsuit against you arise, even if you think it could never happen. Start by having liability insurance.
“One of the best ways to avoid negative impacts of a lawsuit is to make sure that you are carrying adequate liability insurance,” said Ryan Byers, attorney at Rammelkamp Bradney, P.C. “If you have auto insurance and are sued because you caused an accident, your insurance company will cover the amounts that you are determined to owe, up to your policy limit. (They will often also cover your defense attorney’s legal bill.)
“In many instances, even if they feel they are owed more money, the person suing you will just settle for the full amount of your policy because of the extra time and expense associated with collecting on a personal judgment against you,” Byers said, while noting that that granted, there are some things an insurance company won’t cover. Best to hash it out with an insurance agent.
Form an LLC
“Another way to avoid negative financial consequences of a lawsuit is to incorporate or form an LLC if you are running a business,” Byers said. “If your business is properly incorporated and it gets sued, then the judgment creditor should usually only be able to collect against income and assets owned by the corporate entity as opposed to your personal income or assets.”
While this won’t protect your business from suffering financial impact, it can protect your personal assets such as your home, car and bank accounts.
“Similarly, your assets may be protected if you place them in certain types of trust,” Byers said. “Your options will vary a fair amount from state-to-state, but a local attorney can discuss them with you.”
Don’t Post About It on Social Media
You may be feeling like you’ve been wronged or backstabbed and you want everyone to know about it. Stay quiet; or, at the very least, don’t talk about getting sued on social media.
“Refrain from making social media posts that may be harmful or upsetting to others,” said David R. Suny, managing partner at McCormack Suny. “Libel and slander are common claims that can result in litigation, especially when you are commenting about another person’s business.”
Ask Your Lawyer About Indemnification
Your lawyer will be able to discuss more ways to protect your finances from devastation related to getting sued. This includes indemnification.
“While technical, ask your lawyer about including an ‘indemnification’ clause in a contract that you are entering into,” Suny said. “This means that under certain circumstances defined in the contract, if you get sued the person or company that ‘indemnifies’ you under the contract will pay for your legal defense.”
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This article originally appeared on GOBankingRates.com: 7 Ways Getting Sued Can Destroy Your Finances — And How To Prevent That
