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When filing chapter 13, what are the insurance requirements for vehicles?

1. First Case Scenario: You own your vehicle outright and there is no loan on your car:
You need to purchase insurance as it is required by the state you live in.

2. Second Case Scenario: Your vehicle is secured by a loan:

The insurance requirement depends on the district in which you file your bankruptcy case is. For the Eastern District of Missouri you must currently: 1. Prepay at least 3 months insurance of the vehicle, 2. the deductible cannot be more than $500, 3. your car creditor (lienholder) must be listed on the insurance policy as the loss payee. You can read about the requirements in more detail in the Procedural Manual provided by the Bankruptcy court.

If you drop your insurance or you do not have insurance, your car creditor might file a motion for relief. If you want to keep your car, you don’t want this motion to be granted. An order on the motion for relief will remove your car from the protection of your bankruptcy case and your car creditor would be able to repossess your vehicle and sell it at an auction.

3. Third Case Scenario: You have a car loan and you do not have insurance on your vehicle. This might be because you surrendered your vehicle in your chapter 13 bankruptcy case or your car creditor has already repossessed your car:
If you do not have insurance on your car, the car creditor can place insurance on your car and ask to get the insurance costs reimbursed for the time up to the sale of the vehicle. Even though the car creditor repossessed your vehicle or you plan on surrendering it through your bankruptcy case, it is still your property until it is sold through an auction. In most of the bankruptcy cases this is not an issue. Most major car creditors will not ask you to reimburse insurance or they might not insure the vehicle for the time until the sale of your vehicle takes place.

However, if your creditor is a credit union, it is more probable that the creditor will insure the car and ask the debtor for reimbursement. In this case, it will be less expensive if the debtor keeps the car insured until the car is sold at an auction because the insurance the credit union buys is generally very expensive.

For more information about Bankruptcy, please contact one of our bankruptcy lawyers in St. Louis or St. Charles.

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