04 May Insurance Requirement on Vehicles in a Western District of Missouri Bankruptcy
When you file for bankruptcy in the Western District of Missouri you must maintain certain insurance coverage on your vehicle if you have a lien on your vehicle. Local Rule 4070-1 D(4) of the Western District of Missouri states that the debtor must maintain 3 months of pre-paid insurance on the vehicle and have a deductible no greater than $500.00.
Your local rules may have different insurance requirements for property involved in bankruptcy. Be sure to check with your attorney to ensure that you comply. In the Western District of Missouri if you do not maintain insurance on your vehicle the creditor may pick up your vehicle after notice of non-compliance. The purpose of the insurance is requirement is to protect the creditor’s asset until the debt is paid if full.
Keep in mind that the basis of bankruptcy is a balancing test (among several other factors) to discharge your debt. A balance of the creditor’s interest and the debtor’s interest. If the debtor does not protect the vehicle through insurance and the vehicle is destroyed there is nothing to collect if the debtor fails in their bankruptcy. The balancing test is therefore titled in favor of the debtor to the detriment of the creditor.
For many, three months worth of full coverage insurance places a financial strain on their budget. However, the judges must balance this strain against the potential of the creditor to lose its asset and possibly not receive full payment of their debt. The insurance coverage gives the creditor a way to reduce its risk of loss.
Keep in mind the insurance coverage is required on a vehicle that has a lien against it regardless of what amount is owed. At this point you are asking what does the debtor get out of this in the balancing test? The debtor is receiving a discharge of their debts and, if they are in a Chapter 13, there is a chance that the interest rate on their vehicle is lowered or they may qualify to cramdown the amount owed the vehicle itself.
So in the end the creditor has their asset protected and the debtor receives a discharge of certain debts. Remember that knowledge is power and the more you know about the local requirements of your bankruptcy court the better prepared you will be.
Written by Kansas City, Missouri Bankruptcy Attorney, Rachel Lynn Foley.