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Taking suggestions from your readers on how to progress your story without being liable to legal damage? Is there a way to navigate this, or this should be a no no at all times, because the risk of a lawsuit outweigh any positive impact it might have on your story?

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Make them waive their rights before making suggestions.
For example, you could have a contact form on your website that's tied to "Terms of Service" which clearly and explicitly state that people give up their right to sue over any suggestions they make.
(However, I'm not a lawyer, so you may want to ask one instead of following the advice of a random person on the internet)

It probably doesn't matter unless you're J.K. Rowling.
Are you a very successful writer making millions a year? No? Then what does anyone have to gain by suing you?
Your readers are your allies, and there's little reason to treat them with suspicion. Take their suggestions, use their suggestions, credit their suggestions. The extra bond you get with your readers by interacting with them probably outweighs any downsides if you're eking out an existence as a writer or doing it as a hobby.

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  • Apparently, The Martian was written using a similar wisdom-of-the-crowds technique. And, it was pretty successful.
    – EDL
    Jan 27, 2022 at 10:18
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Even with waiving of rights you may still be open to claims. For instance, if one of your readers provides you with the same setting and plot as a published work and you decide to follow that, you'll still be liable.

Unless you want to spend your time figuring out whence your readers' inspiration comes from, the safer course is

give readers a poll over predefined set of choices of your own.

While this may limit the options to your own imagination, it places you on a safer ground if your main concern is future lawsuits.

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