Wednesday, February 15, 2017

Can I Get Caught Up On My Auto Insurance In A Chapter 13 Bankruptcy?

Chapter 13 bankruptcy cases allow distressed debtors to reduce the amount of debt they owe, or eliminate it all together. Things like car and house loans can be paid through a Chapter 13 Plan and you can even cure past due mortgage payments over time rather than all at once if you file a Chapter 13. But these are not the only accounts you have that may be behind, and it is good to know how all of your important obligations are treated in Chapter 13. Unsecured debt is paid at a pro rata rate, which means this category of creditors only gets paid a percentage of their total debt. Cars are paid at their value instead of the loan balance, and house payments are brought current and maintained in a current status as long as you make your Chapter 13 Plan payments. But what about things like your cell phone bill, or your auto insurance? Can you pay the back due amount on these things without an interruption in service, or will you have to find the money to get caught up at the outset of your case?

Your auto insurance is technically an unsecured debt, but it is required for a piece of secured collateral. In a Chapter 13 bankruptcy if you do not have current insurance on your car, here are the possibilities:

         The lender may force place a policy, which will only protect them and not you, and add the premium to your loan. You will not be allowed to pay only a portion of this amount, like you can do with your actual car loan, but rather will be required to repay it in full.
         The Trustee might get a policy, and charge it to your bankruptcy for repayment. Again, this is not the best policy and will likely cost more than what you could get on your own.
         You might lose possession of your car, because without insurance coverage the lender is entitled to seek return of your vehicle in order to protect its asset.
If you are not current on your auto insurance, the best thing to do is get current before you file a bankruptcy case. That way you start out in the positive and with the reduction or elimination of other debts can stay current on your insurance needs.

If you have more questions about bankruptcy, contact us today at We will help you come up with solutions that work for your family, and have multiple locations where we schedule appointments so you can make a choice that is convenient for you.

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