If you have an accident while in bankruptcy, the approach with the court will depend on the type of bankruptcy you are involved in, Chapter 7 bankruptcy or Chapter 13 bankruptcy. This blog will discuss only Chapter 13 bankruptcy cases. These are guidelines specific to the Middle and Western Districts of North Carolina, so you should speak with your bankruptcy attorney regarding any nuances to your bankruptcy court’s procedure.
In addition, this blog does not address the process for settling any personal injury claim you may have against the negligent party in the accident, only property damages to your vehicle. You should seek the advice of a personal injury attorney if you believe you are injured in the accident. The bankruptcy court’s approval of a personal injury settlement is required, but may or may not be involved in the initial settlement for property damages; therefore, it is not discussed in this blog.
If your vehicle is involved in an accident and deemed a total loss by the insurance company, you must work with your bankruptcy attorney to obtain the bankruptcy court’s permission to settle the claim, modify your bankruptcy and purchase another vehicle. The steps required by the various parties are outlined below.
Steps you, as the debtor, should take in the process:
- Contact the insurance company that will pay the claim, yours or the negligent party’s, and let them know you are in a Chapter 13 bankruptcy.
- Give the insurance company your bankruptcy attorney’s name and phone number.
- Give your personal injury attorney, if applicable, your bankruptcy attorney’s name and phone.
- Contact your bankruptcy attorney’s office and let the appropriate person know the vehicle has been involved in an accident.
- Tentatively agree to the property damage settlement offered by the insurance company. (If you have a personal injury attorney, you may speak with him/her regarding the value offered on the vehicle, but it is usually dictated by the insurance company’s guidelines.)
- Speak with your bankruptcy attorney regarding the process for obtaining a replacement vehicle.
- Look for another vehicle, if necessary, and with the assistance of your bankruptcy attorney determine how much your budget will allow you to spend for another vehicle.
- Amend your budget for another vehicle payment, if necessary, and provide it to your bankruptcy attorney.
- Attend the hearing to obtain permission to settle this insurance claim, modify your bankruptcy and obtain approval to purchase another vehicle, if necessary.
Steps the insurance company should take in the process for the bankruptcy:
- Offer you a property damage settlement on the totaled vehicle.
- Provide the written offer for the vehicle to your bankruptcy attorney.
- Pay the finance company or the Chapter 13 Trustee the proceeds from the insurance settlement.
Steps the finance company, if there is a loan on your auto, should take in the process:
- Provide a letter of guarantee to the insurance company that upon settlement of the claim the salvage title for the vehicle will be provided to the insurance company.
Steps by your bankruptcy attorney in the process:
- Contact the Chapter 13 Trustee’s office and request that the monthly payment on the auto loan, if applicable, be placed on hold or reserved until the insurance company offers a settlement on the property damages and approval is obtained to settle the claim from the bankruptcy court.
- Contact the Chapter 13 Trustee’s office to determine what your Chapter 13 payments can be reduced to after the anticipated property settlement on the vehicle. Keep in mind that the settlement offer by the insurance company may not be sufficient to pay off the amount owed on the vehicle. As a result, any balance owed to the finance company will be considered a claim in your bankruptcy. The amount paid on the finance company’s claim balance will be based on your specific Chapter 13 bankruptcy plan.
- After receipt of the settlement offer from the insurance company, file a Motion to Settle Insurance Claim, Motion to Modify Plan and a Motion to Incur Debt, as applicable. There are specific timelines for these motions, and as a result, you should anticipate 30 calendar days to obtain the bankruptcy court’s approval.
- The Motion to Settle Insurance Claim requests the bankruptcy court’s approval for you to sign the documents to complete the settlement with the insurance company and for the insurance company to pay the claim. It also tells the insurance company who the settlement check is made payable, either the finance company or the bankruptcy Trustee on your behalf.
- The Motion to Modify Plan requests your Chapter 13 bankruptcy plan be reduced for what has been paid to the finance company for your totaled vehicle. It may also request that your Chapter 13 plan payments be reduced so you can afford a replacement vehicle.
- The Motion to Incur Debt requests the bankruptcy court’s permission for you to go into debt and sign loan documents to purchase another vehicle. This is to ensure you purchase a vehicle that is within your budget.
- Attend the hearing in front of the bankruptcy judge with you.
- Submit the Orders on the motions to the bankruptcy judge for approval.
- Ensure you Chapter 13 bankruptcy plan is adjusted as appropriate for the totaled vehicle.
Each bankruptcy case is different, so your case may not follow these exact guidelines. However, you should contact your bankruptcy attorney and they will assist you in maneuvering through the bankruptcy court’s process.
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