What If I Wreck My Car While I’m In Chapter 13?

17 Dec What If I Wreck My Car While I’m In Chapter 13?

A wreck is a traumatic experience no matter what the circumstances, but it can present some special challenges if you are in Chapter 13 when it happens.  Don’t worry, though–you can work your way through it.

I tell my clients that when their car is involved in an accident, the first call should be to 911, the second to their insurance carrier, and the third to me.  This is one of those things where it is easier to prevent a problem than fix one.  The steps that will be necessary to get you through the process will differ depending on several factors, including how much damage there is to the car, how much it’s worth, and whether you still owe on the car. 

Lets say you have some repairable damage, and insurance will fix the car.  Your attorney may be of some help in going through the claims process, and ensuring that you get what you are entitled to as compensation, but you may well be able to handle the matter on your own.  On the other hand, let’s say the car is totalled, it had a lien on it, and you want to use the insurance to purchase another car.  In that case, your attorney may file a motion to substitute collateral (so you can use the insurance proceeds to purchase a “new” car instead of paying it to the lienholder) and a motion to “sell” your wrecked car to the insurance company (so they’ll pay you the money).  Add another layer if you intend to buy something worth more than your totalled car, and need to finance the difference.

All of that takes time, as you can imagine, which is why it is important to let your attorney know what is going on as soon as possible.  And by all means, contact your attorney before signing any agreement to purchase a new car.  Car dealers are anxious to sell cars, and the requirements of the bankruptcy court may be of little interest to them.  It is your responsibility to make sure you remain in compliance with the terms of your Chapter 13 plan, and the obligations it places on you.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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