Bankruptcy and insurance may seem to be unrelated topics at first glance, but insurance issues are common in many bankruptcy cases. Not only is the Court involved if you’re going to be receiving insurance proceeds, but failure to keep insurance on your home or vehicle can actually result in the Court removing the bankruptcy protection from that asset.
Vehicle Insurance While in Bankruptcy
If you’re in a wreck or there is some other property damage that you suffer, your insurance company will look at the damage and at your insurance policy to determine the amount of funds you’ll receive. If you’re in a bankruptcy case at the time, be sure to tell both your insurance agent and your bankruptcy attorney. Any time an outside source is prepared to pay you a sum of money, the bankruptcy Court has to enter an Order directing how the funds are to be distributed. In the case of a totaled vehicle, it’s common for the Court to Order the insurance funds to be used to pay the remaining balance of the debt on the vehicle and for the remainder of the money to come back to you. Basically the situation plays out the same way as if there was no bankruptcy case, but the court Order is still required before the insurance company can pay out the funds. The sooner you let your bankruptcy attorney know about the situation, the faster he or she can start the process to get court approval.
If you owe a debt on a house or a car, the creditor can insist you keep insurance coverage on the asset as part of the bankruptcy. Since creditors are prohibited from any debt collection actions while you’re in bankruptcy, they have a right to know that the collateral on their loan will at least be protected. If a creditor insists that you keep full coverage insurance on your car or house and you fail to do so, they can move the Court to remove the Automatic Stay that protects you. That means they could potentially repossess your car or find your mortgage in default and begin foreclosure.
Your bankruptcy attorney should know all about the role insurance plays in your case. If you’re considering bankruptcy and want to discuss your situation, please contact one of our convenient offices in Alabama, Tennessee, or Mississippi. We offer free consultations with one of our experienced attorneys to help you resolve your financial problems.
Nick Gajewski is an Associate Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Arts from the University of Alabama, and a Juris Doctorate from the University of Alabama School of Law. Nick joined the team of Bond & Botes bankruptcy lawyers back in 2014 and has been helping clients navigate financial issues since. Read his full bio here.