Since most chapter 13 cases last for about 5 years, lots of things can happen. One of those “things” that can happen is that your car is involved in a car wreck and now the car you were paying for in the bankruptcy has been totaled. What happens? What do you need to do? What does your insurance need to do?
If you have wrecked your car, but it is not totaled, then you go through the same procedure as if you were not in a bankruptcy case and make sure that your car is repaired. The bankruptcy court does not need to get involved in this process.
If your car has been totaled however, the process will be a little different depending on whether or not the ENTIRE car was paid off or if there is still a balance owed on the car.
THE CAR HAS BEEN TOTALED AND THE BALANCED OWED ON THE CAR HAS BEEN PAID IN FULL
The first thing you need to do is make sure that your claims handler is aware of the procedures for handling a claim for a client that is in a bankruptcy case. While there is nothing “magic” or “special” they need to do outside of normal claim handling, many insurance adjusters will get completely freaked out when they realize that the loan is a bankruptcy. Here is what we tell our clients (we even have a web page FOR their insurance people to literally SPELL it out for them):
- The insurance company evaluates the claim (as normal) and provides information to you as to what will be paid on the claim.
- In our district, there is NO motion or order filed/entered that “tells” the insurance company what to do. Some insurance companies will write the trustee and request a letter telling them this which is fine but it is NOT required.
- The insurance company contacts the lien holder and pays them the amount still owed on the car. The lien holder will have this information since they are the lien holder. Again, nothing magic the trustee or your attorney needs to do. The lien holder should know what is still owed on its claim.
- If there is any extra money left over to be paid to you then the insurance company must first send that money to the Chapter 13 trustee. If you want to keep some of that money for an allowable purpose (maybe a down payment on another vehicle) then your attorney will need to file a Motion to Incur Debt.
THE CAR HAS BEEN TOTALED AND THE BALANCED OWED ON THE CAR HAS NOT BEEN PAID IN FULL
Same procedure as above except, since the car has not been paid off in full, the balance left must still be paid. In our district at least, you would want to check with your attorney about filing a Post-Plan Modification in order to change the treatment of this claim from a secured claim to an unsecured claim. Depending on your Chapter 13 Repayment plan terms you may not have to repay the remaining balance. This will be on a case by case basis so check with your attorney on this issue.
You do want to ensure that your insurance company provides you proof of what was paid to the lien holder so that your attorney can provide this information to the court in order to modify the lien holder’s claim as paid through the plan.