Accidents happen anytime and anywhere. If you get into a vehicle accident while in the middle of a chapter 13 bankruptcy, you may be wondering how the court will handle the incident. It depends on whether the vehicle was totaled and if your chapter 13 payment plan has already been confirmed. Here's what you need to know.
Before Plan Confirmation
Things will proceed as though you didn't file bankruptcy if the vehicle can be repaired. The insurance company will pay for repairs to be done to the car or truck, and your case will typically continue on like normal. The only thing that may be different is you'll have to claim any additional payments you receive from the insurance company (e.g. for pain and suffering) or through a personal injury lawsuit as income. You may be required to pay any amount in excess of your eligible exemptions into your plan.
If the vehicle is totaled, however, you will have to surrender it to the lender and adjust your petition to remove the monthly payment from your expenses. You'll be at a little bit of a disadvantage here, because the court will not have assessed the market value of the vehicle. Therefore, the lender may claim the vehicle is—conveniently—valued the same amount of money the insurance company will pay for the car and take the entire check the insurance provider sends you for the totaled vehicle. However, you'll still receive money for other damages you sustain, and you must report that as income.
After the Plan Confirmation
Accidents that occur after the court approves your chapter 13 payment plan are handled a little differently. Namely, the trustee will have secured an estimate on the market value of the vehicle. So if the insurance company cuts you a check for more than the value listed on your bankruptcy papers, you will be given the difference. For example, the bankruptcy court values your vehicle at $6,000 but the insurance company issues a check for $8,000 after totaling the car. You would receive the $2,000 difference.
Again, the trustee may count this money as income. Additionally, you may be required to continue paying the auto loan lender if you have a balance left over on your account, though it may not be as much as you'd be responsible for if you weren't protected by bankruptcy court. Lastly, you must obtain court approval before you can secure another vehicle, especially if you'll be making monthly payments on it.
For more information about this issue or help litigating a chapter 13 case, contact a bankruptcy lawyer, like O'Connor Mikita & Davidson LLC.