auto insurance and bankruptcy

Why Car Insurance Is Important During Chapter 13 Bankruptcy

When you choose Chapter 13 bankruptcy, your budget may be tight. Rather than having your debts discharged, as you would in a Chapter 7 bankruptcy, you commit to a three-to-five-year payment plan that allows you to pay back some or all of your debts on a structured schedule. This means setting aside a chunk of money every month to hold up your end of the contract.

You may be surprised by which actions can cause issues in your bankruptcy claim and even land you back in court. Letting car insurance lapse in order to save a little bit of money is one of them.

Looking for more personalized help with your bankruptcy needs? Let us guide you through this process. Call Padgett & Robertson at 251-342-0264.

Creditors Must Approve of Your Chapter 13 Plan

To start, creditors must approve of your Chapter 13 plan. If they object, you will have to answer to the court. Typically, the court gives you ten days to rectify the mistake and get the full coverage required of you.

Note that this isn’t a special bankruptcy-only insurance requirement. Whenever you have a car loan, the terms of your loan generally require you to carry full coverage. This ensures that the lender is not left hanging if you crash and your car loses value. It is completely fair for the lender to expect you to keep up with this requirement during bankruptcy.

Relief From the Automatic Stay

You may believe that the automatic stay, which prevents creditors from attempting to collect a debt as soon as you file bankruptcy, keeps the vehicle lender from contacting you at all. This is not the case. Allowing your insurance to lapse often gives the lender grounds to ask the court for relief from the automatic stay. This permits them to contact you and demand that you fix the issue promptly.

What Happens If You Do Not Get Insurance Right Away

As noted, you typically have ten days to fix an insurance issue after you are notified of it. If you fix it promptly, that is often the end of it—you simply go back to your normal repayment schedule and have no further issues as long as you maintain your insurance.

If you do not handle it quickly, the lender may take you to court and file an objection to your Chapter 13 plan. This costs them time and money, and it can also increase your legal fees.

Additional Fees and Legal Costs

If your vehicle lender has to pay their attorney more to file an objection to your Chapter 13 plan, it’s unlikely that they’ll simply swallow that cost and move on. Instead, they can demand that you pay their legal fees and the costs associated with filing legal motions.

These expenses are often added to your Chapter 13 plan, increasing your monthly payment and putting you even further away from being free of your debt. On top of that, you’ll also likely have to pay your attorney more for representing you in court when the lender files a motion.

Please note that these outcomes may happen even if you rectify an insurance problem as soon as you find out about it. In most cases, fixing the issue gets the lender off your back and doesn’t cost you any more money. In other cases, the company will automatically file a motion for relief from the automatic stay and drop it after you address the issue. They may still come after you for legal fees then. That’s why the best option is to avoid letting your insurance lapse at all.

Start Your Bankruptcy Claim with Padgett & Robertson

Whether you qualify for Chapter 7 or Chapter 13 bankruptcy, navigating this complex process is a challenge. Once you get through it, a fresh start awaits you on the other side. When you choose Padgett & Robertson, you can feel confident that your case will be in good hands. Are you ready to find out if bankruptcy is the right option for you? Let’s talk about your financial status and what your next steps are. Call us at 251-342-0264 or get in touch online.

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