Accidents can happen anywhere and anytime. If you are involved in an automobile accident while in a Chapter 13 bankruptcy, you might wonder what would happen and how the court handles the incident. Below we have explained what happens if you damage your vehicle while you are in a Chapter 13 bankruptcy.

Vehicle Damage During Chapter 13 Bankruptcy

If you wreck your vehicle during Chapter 13 bankruptcy, you should have your insurance company pay the lienholder the balance that is due on the claim. This can be less than what is being shown to be due. Then you would receive the difference. For example, if you wreck your vehicle and your insurance firm or the insurance company of the other driver agrees to pay $12,000 to you. However, the lien must be paid off. If the car is being paid through the Chapter 13 payment plan and according to the records of the Trustee and there is only $7,000 left on the claim, then the lien holder will only be entitled to $7,000, and you will get the difference, i.e., $5,000. Another alternative is that you get a Motion to Substitute Collateral filed by your attorney. This isn't easy, but an attorney can do it. In this case, the Bankruptcy Court would order that all or part of the insurance cash be used for buying another vehicle. Then the lien holder will be put on that car in the same amount that they were on the previous vehicle. Then you will continue to pay that amount through your payment plan. This option is useful when you need another vehicle but can't afford to finance it. The court would put the lien on your new vehicle. There are many court cases where this has been allowed, and debtors aren't usually denied this right. If you are going with option one, then have your attorney look at the case and make sure that you get the insurance money from your insurance firm or the insurance company of the other driver. Don't delay things and act fast to ensure that you get compensated for your loss.

Final Thoughts

If you wreck your vehicle during Chapter 13 bankruptcy, you don't necessarily have to worry too much because insurance would pay for it. However, if your vehicle has been totaled, make sure to go with the second option – filing a motion. This way, you would get a new vehicle, and the lienholder would be placed on that.