07 Jul Bankruptcy Issue: Insurance Proceeds After An Accident.
There are many issues that can arise when you file a Chapter 13 bankruptcy case and insurance proceeds from a vehicular accident may be one such issue. Let’s presume the following facts: You are two years into a five year Chapter 13 Plan, you have had an accident that has totaled your vehicle, your full coverage insurance is going to pay the value of your vehicle, you wish to keep the vehicle because even though the vehicle is totaled you can repair the vehicle and the creditor is now objecting to keeping the vehicle. If you are paying off your vehicle in a Chapter 13 and the insurance payment will reduce the amount that you now have to pay why would a creditor object to you keeping the vehicle?
In a Chapter 13 bankruptcy the creditor always has the risk that the debtor will stop making the payments or the debtor will surrender the vehicle. Either way the creditor loses because they are not going to get their money and the vehicle may not be worth more than what they could receive by turning it over for scrap metal. So when an accident occurs the creditor becomes excited because the insurance company must pay the lien holder if there is a remaining balance on the loan. If debtor wishes to keep the vehicle after it is totaled the overall payout is reduced by salvage value of the vehicle. This means that the creditor will receive less money in a lump sum and they continue to carry the risk that the debtor will complete their Chapter 13.
You have a choice when you are faced with this situation. You do not have to give up the vehicle if it is has been totaled in an accident and you are in a Chapter 13. Do not let the creditor bully you into a decision. This behavior is more common with the “buy here pay here lots” but as our economy continues to slide deeper into the negative it would not surprise me if the mainstream lenders begin to encourage debtors to surrender their totaled vehicles instead of keeping and repairing them.
If you have had an car accident and are currently in bankruptcy let your attorney know your situation as soon as possible. Do not sign any documentation or agree to anything unless you check with your attorney first.
Remember that knowledge is power and the more knowledge you have about your rights in bankruptcy the power you will have to complete your bankruptcy successfully and regain financial control.