Many motorists are guilty of carrying only the minimum amount of auto insurance coverage required by law. Some find the minimal coverage limits more affordable than carrying higher limits, while others simply don't understand the value of higher coverage amounts. Either way, it's a decision that often proves costly in the aftermath of a severe auto accident.
So what happens when you're involved in an auto accident and the damages exceed the legally mandated minimums for your insurance coverage? While there's no criminal penalty for driving without adequate insurance coverage, getting in an accident with only minimum coverage can have other, potentially severe consequences.
Your Personal Finances Are Fair Game
You can count on your auto insurance provider to take care of any bodily injury and/or property damage claims that arise from the accident, but only up to the stated amounts listed on your policy. Beyond that, you're on the hook for any amounts that exceed your policy limits. Unless the injured party makes a claim under their uninsured/underinsured motorist (UM/UIM) coverage, the courtroom becomes the only avenue left for compensation.
If the injured party's attorney decides to file a lawsuit to recover damages, you can expect your personal assets and income to be at risk. You can also expect a private investigator to track down and size up your finances. The injured party's attorney may consider your occupation, personal assets, savings and even earning potential prior to taking action. If you have no assets to speak of or only assets that are legally protected from seizure, you may be considered "judgment-proof."
Once a judgment is rendered against you, you'll have no choice but to pay out of pocket for any damages not covered by your auto insurance policy. A failure to pay voluntarily could result in the following actions being taken against you.
A significant portion of your monthly earnings may be garnished under court order to satisfy the judgment. Under federal law, wage garnishment only applies to 25 percent of your post-tax disposable earnings or earnings that exceed 30 times the federal minimum wage, whichever is greater.
Any sizable personal assets you have may also be up for grabs. For instance, tangible assets including vehicles, jewelry, and valuable properties and bank accounts can be seized and sold by the injured party, with the proceeds going towards satisfying the judgment. Even your bank accounts can be levied to satisfy the judgment.
Certain assets, such as your primary residence, can be shielded from forced sale as long as certain conditions are met. In some states, homes that fall under the homestead exemption and/or that fall under specific value thresholds are usually exempt from court-ordered judgments.
If the injured party requires medical care for the rest of their life or otherwise suffers a severe future loss of their earning potential, their attorney may go after your future earnings. This may be a concern if you work in a high-earning field.
Your Driving Privileges May Also Be at Risk
Any judgment that exceeds your auto insurance policy's coverage limits could also place your ability to drive in jeopardy. Failure to pay the judgment in full could result in your driver's license being suspended. In some states, you may also be required to surrender your vehicle's license plates.
In most cases, your driver's license will remain suspended until the judgment is satisfied in full. Notable exceptions include Arizona, where the suspension is lifted if the judgment creditor fails to renew the judgment within 10 years after the judgment date and Alaska, where the suspension is lifted after 3 years regardless of whether the judgment is satisfied.
For more information on the potential legal ramifications of a car accident, contact an auto accident attorney in your area.