The Unknown Element of Bankruptcy: Car Insurance

The Unknown Element of Bankruptcy: Car Insurance

How Bankruptcy Affects Your Car Insurance Payments

When you’re thinking of filing for bankruptcy, you’re likely thinking of things like credit card bills and an overdue home loan. You likely aren’t thinking about other bills, like your car insurance. In fact, you may have even decided to stop paying your car insurance and other bills so that you could put your resources toward more important items. 

However, as any Gilbert bankruptcy attorney will tell you, it is very important that you continue to pay your car insurance bill. Failure to maintain the required car insurance could have a lot of consequences, including jeopardizing a Chapter 13 bankruptcy petition. In an effort to save yourself some money, you will end up costing yourself a lot more. 

The Unknown Element of Bankruptcy: Car Insurance

Required Car Insurance

By law, you must maintain a minimum amount of insurance on your vehicle to drive it. In Arizona, you are required to carry bodily injury liability coverage with a minimum of $25,000 per person or $50,000 per accident, property damage liability coverage with a minimum of $15,000, and uninsured and underinsured motorist bodily injury coverage with a minimum of $25,000 per person or $50,000 per accident.

However, the bankruptcy court will likely require more than the minimum if you are still financing your vehicle. The bank that has lent you the money for your vehicle has an interest in protecting that investment, and proper insurance must be maintained to protect against damage or loss. Otherwise, you may decide to stop paying the loan if the vehicle is damaged.

Bankruptcy court requires that you maintain “full coverage” insurance on a vehicle that is being financed. Full coverage includes both collision and comprehensive insurance. The court may even ask for documentation of the insurance, which should also identify the lienholder. 

Consequences for Lapsed Car Insurance

If you cannot provide proof of insurance to the bankruptcy court, or if the court discovers that your car insurance has covered, it may object to your Chapter 13 bankruptcy plan. Once that happens, you will have 10 days to provide proof of coverage. Or, if you do not have coverage, you will have 10 days to get the insurance you need and to provide evidence of it to the court. 

Failing to meet this requirement may result in severe consequences. For example, the court may grant the lienholder relief provisions, which would give them permission to repossess the vehicle. Or you may be forced to purchase insurance through the court, which would end up being much more expensive and would not provide needed coverage to you. The insurance purchased through the court would only provide protection for the lienholder. If you were to be pulled over and you showed the court-purchased insurance, you would end up being fined since that insurance would not be sufficient to cover your legal obligations. 

Stay ahead of this situation by prioritizing your car insurance bill each month and keeping your policy current. 

Hire a Gilbert Bankruptcy Lawyer to Get Debt Relief

You shouldn’t have to figure out which bills to pay each month to get by. You should be able to have car insurance and other necessities to protect your quality of life. Filing for bankruptcy may be able to help you get the debt relief you need so you can take back control of your finances and regain stability. Chapter 13 bankruptcy allows you to reorganize your debt under an affordable repayment plan that lasts three to five years. You may be able to save your car from repossession or your home from foreclosure. 

Gilbert Bankruptcy Lawyers are ready to help you get the debt relief you need through bankruptcy protection. We represent clients seeking to reorganize their debt under Chapter 13 bankruptcy, as well as those seeking to have their unsecured debts discharged through Chapter 7 bankruptcy. We’ll review your finances and help you understand which chapter of bankruptcy is most likely to meet your needs. We require zero money down to file bankruptcy, and we offer a free consultation. We also offer affordable fees so that you do not have to struggle further in your efforts to get debt relief. Call us in Gilbert today to schedule a consultation with a bankruptcy lawyer.

Gilbert Bankruptcy Lawyers
Office: 480-448-9800