Will I Lose my Home in a Personal Injury Lawsuit?

Personal injury lawsuits can create financial uncertainty, especially when it threatens your home and assets. Losing your home is a serious concern, but Colorado law offers strong protections to help homeowners avoid this worst-case scenario. Understanding these laws and taking proactive steps can safeguard your financial future.

Personal Injury Lawsuits in Colorado

Personal injury lawsuit arise when someone is injured due to the negligence or wrongful actions of another party. For example, if someone slips on an unmarked wet floor in your home, or if you cause a car accident, the injured party might sue for compensation. This compensation often includes medical expenses, lost wages, pain and suffering, and other damages. If you are found liable in a personal injury lawsuit, the court may order you to pay damages. Your liability insurance may cover these costs, but if your policy limits are too low, the remaining balance comes from your personal assets. This situation puts your home at risk, but Colorado law provides protections that may prevent creditors from seizing it.

What Happens if You Cannot Pay a Judgment?

If a personal injury lawsuit results in a judgment against you and your insurance does not fully cover the amount owed, creditors can take legal action to collect the remaining balance. Common collection methods include:

• Wage garnishment – A portion of your paycheck goes directly to the creditor until the debt is paid.
• Bank account seizure – The creditor withdraws funds from your accounts through a court order.
• Property liens – The creditor places a claim on your home, preventing you from selling or refinancing without paying the debt.

Homestead Exemption: Protect for Your Home

While a lien can create financial challenges, Colorado law offers substantial protection for homeowners through the homestead exemption. The homestead exemption is designed to shield a portion of your home’s equity from creditors. As of 2024, the exemption amounts in Colorado are:

• $250,000 in equity protection for a primary residence.
• $350,000 in equity protection if you, your spouse, or a dependent is elderly (60 or older) or disabled.

This protection applies only to your primary residence, meaning you or a qualifying family member must live there full-time. If your home’s equity (market value minus any mortgage or liens) falls below the exemption limit, creditors cannot force the sale of your home to satisfy a judgment.

Example 1:

Your home has $240,000 in equity, and you do not qualify for the higher exemption. The homestead exemption protects the entire amount, ensuring your home remains safe even if you lose a lawsuit.

Example 2:

Your home has $300,000 in equity, and you do not qualify for the higher exemption. The first $250,000 remains protected, but creditors can pursue the remaining $50,000 by placing a lien or taking other legal action.

What Happens if Your Home’s Equity Exceeds the Exemption?

If your home’s equity exceeds the exemption, creditors may place a lien on your property. A lien gives the creditor a legal claim to part of your home’s value. This does not mean your home will be sold immediately, but it does mean the creditor could collect proceeds if you sell or refinance your home.

In rare cases, a creditor might take additional legal steps to force the sale of your home. Here’s how that process generally works:

When a creditor wins a lawsuit against you, they may try to collect by placing a judgment lien on your property. This means they file a legal claim against your home or other real estate. The lien prevents you from selling or refinancing until you pay the debt. It also gives the creditor a right to collect from any proceeds if you sell the property.

If you do not pay, the creditor can take the next step: execution on the judgment. This means they ask the court for permission to seize your property. Once the court grants the request, they can move forward with collecting the debt.

In rare cases, a creditor may push for a sheriff’s sale. This is a court-ordered public auction where your property is sold to the highest bidder. The money from the sale goes toward paying off the judgment. However, forced sales do not happen often. Many states have homestead exemptions that protect homeowners from losing their primary residence. If your home’s equity falls within the exemption limits, a creditor may not force a sale.

However, forced sales are complex and uncommon, especially if your home’s equity is within the exemption limits.

Liability Insurance: Your Best Protection

A lawsuit can put your home, savings, and other assets at risk. The best way to protect yourself is with liability insurance. This coverage pays for legal costs, settlements, and judgments if someone sues you for causing injury or property damage. Below, please find a list of the key insurance policies to protect your home and assets:

Homeowner’s Insurance

This policy protects you if someone gets injured on your property. If a guest slips on your stairs or your dog bites someone, your policy covers medical bills and legal fees. Without it, you could be forced to pay out of pocket.

Auto Insurance

Car accidents often lead to expensive lawsuits. If you cause a crash, the other driver may sue you for medical bills, lost wages, and pain and suffering. High liability limits protect you from paying these costs yourself. Without enough coverage, a serious accident could wipe out your savings and put your assets in danger.

Umbrella Insurance

Standard policies have limits. If a lawsuit exceeds those limits, an umbrella policy covers the rest. For example, if your homeowner’s insurance covers up to $300,000 in liability and a court awards $500,000, the umbrella policy pays the extra $200,000. This extra coverage is crucial for protecting your assets from high-dollar lawsuits.

Carrying the right insurance can mean the difference between financial security and losing everything in a lawsuit. As a personal injury attorney, I have seen how devastating legal claims can be for those without enough coverage. The best protection is to plan ahead and make sure your policies provide full coverage for any risks you might face.

Protect Your Home and Future

Losing your home in a personal injury lawsuit is a possibility, but Colorado’s homestead exemption provides a strong layer of protection. If your home’s equity is below the exemption limits, your home is safe from creditors. However, if your equity exceeds those limits, you could face collection efforts, including liens or, in extreme cases, a forced sale.

To minimize these risks:

• Review your liability insurance policies regularly.
• Consider increasing your coverage limits.
• Purchase umbrella insurance if you have substantial assets or high home equity.

Taking these steps now can give you peace of mind and ensure that your home and financial future remain secure, even if the unexpected happens.

Contact our Colorado Personal Injury Lawyers

At Bowman Law, our Colorado personal injury lawyers specialize in advocating for individuals who have been significantly impacted by accidents in Colorado. We recognize the physical, emotional, psychological, and financial challenges victims face in the aftermath of such collisions. Our legal team is skilled in navigating the complexities of your case.

Contact us at 720-547-4109 for a free case evaluation and let us assist you. We will guide you throughout the process, fight for your legal rights, and work tirelessly to pursue the maximum settlement you need to recover and move forward. Our office is located in Denver. We serve the Front Range, including Colorado Springs, Boulder, Fort Collins, Westminster, Lakewood, and Aurora.