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I have a lot of story planned and it's just as lame for me as it is for them. I accidently threw a couple Mud Lashers that were too difficult after they had defeated the huge Mudbeast. This was honestly just a filler quest to waste their time but it just killed them. Sadly we're running a two person thieves guild campaign without a cleric so it's fairly difficult to scale for them so I feel like I'm to blame just as much as they are for not running away at low health.

I've thought of some solutions like removal of enchantments or skill penalties but they don't feel good enough. I was wondering what other DMs would do - how should I handle this situation?

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Just because they lost the fight does not mean they are dead. It is very common for enemies to have a reason to take the party's members alive. They could find themselves in a dungeon, or tied up in a goblin warren, or in a high-tech prison, or perhaps just robbed and left naked depending on the enemy, the genre, and what will help your story move in the most interesting direction.

The entire party waking up groggily to remember losing the battle is a great motivator.

In light of your specific problem, now that you have put more detail into the question, one example of a solution would be to have them wake up in a mud-dripping cavern, bones of past victims around them, maybe one other survivor that is off to the side. (0-level NPC or some other convenient red-shirt). Then you have a whole new adventure surrounding your players, and they haven't died, but did lose the fight. Goals could be to figure a way out, find out why they were dragged off, but not killed, etc. Makes a side-quest much fuller and makes it look like you didn't just pull it out of your rear, but planned for them to lose the fight instead.

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  • \$\begingroup\$ Thank you for your help. The only question I have is how do I make sure they don't do this again? They each said that even if they do come back there should be a a big penalty. \$\endgroup\$
    – Kaileb
    Aug 14, 2014 at 0:00
  • \$\begingroup\$ Semi-permanent disabilities can be added, but if you don't get xp then they have been penalized... if you look at the basic rules dog on encounter building. \$\endgroup\$
    – Aviose
    Aug 14, 2014 at 0:04
  • \$\begingroup\$ I had scoured the books on death but we all felt that their rules weren't enough. In the end I took away their exp and sent them on a side mission where they realized they were in hell. It worked pretty well but I warned them that the next time they die Hell will be far more challenging. And if they die in hell they die permanently. I also broke some of their favorite magic items to give them a feel of how much harder it is, only to give it back after they awake from the spirit realm. \$\endgroup\$
    – Kaileb
    Sep 10, 2014 at 23:09

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