In Part I of this series, we provided a general overview of how to settle your property damage claim and get a replacement vehicle if you find yourself in Chapter 13 bankruptcy. This part will address the specific things that have to happen to get the bankruptcy court’s approval to settle your property damage claim and obtain a replacement vehicle.
GETTING PERMISSION TO SETTLE THE PROPERTY DAMAGE CLAIM
- Once you advise your bankruptcy attorney of the property damage claim, your bankruptcy attorney will contact the chapter 13 Trustee’s office and request the Trustee place any monthly auto loan payment on hold or on reserve until the insurance company offers a property damage settlement.
- Provide the written offer from the at-fault insurance company for the vehicle to your bankruptcy attorney.
- The Trustee will determine how much, if any, she can reduce your Chapter 13 payments after the anticipated property damage settlement.
- Remember sometimes you owe more on the vehicle (because of accumulated interest, etc.) than the vehicle’s “blue book” value (all the insurance company has to pay). When you are in this situation, the amount you still owe to the auto finance company after the insurance company has paid out is made a part of your bankruptcy—it’s not outright forgiven. Also, keep in mind, the Trustee may not apply all of the amount the insurance company pays out for your vehicle to the vehicle finance company. Some of it may be spread across your creditors. It depends upon your plan.
- MOTION TO SETTLE AN INSURANCE CLAIM. After you agree to the property damage settlement with the insurance company, your bankruptcy attorney should file a Motion to Settle an Insurance Claim. The Motion to Settle an Insurance Claim requests the bankruptcy court’s approval for you to sign any insurance company documents and for the insurance company to issue the property damage claim check. The resulting Order from this Motion will designate to whom the at-fault insurance company should cut the property damage check to—either the finance company or the Trustee on your behalf. Court timelines dictate when the court approves motions, but you should anticipate you will wait at least 30 days before approval of any motion.
HOW YOU GET A REPLACEMENT VEHICLE
- MOTION TO MODIFY PLAN AND MOTION TO INCUR DEBT—In order to get a replacement vehicle for your “totaled” vehicle, and if you need any funds to help you get a replacement vehicle from the property damage settlement, your bankruptcy attorney should file two motion with the bankruptcy court: A Motion to Modify Plan and a Motion to Incur Debt.
- The Motion to Modify is what helps you buy a replacement vehicle. The Motion asks the bankruptcy court to reduce your bankruptcy plan (what you are having to pay your creditors) by what the insurance company paid to the finance company for your totaled vehicle. It will also ask the bankruptcy court to reduce your monthly Chapter 13 plan payments so you can afford a replacement vehicle. The Court usually allows this.
- In addition to the Motion to Modify, your attorney probably will file a Motion to Incur Debt. This Motion asks the bankruptcy court’s permission for you to borrow money to finance another vehicle. The Court will look carefully at how much your payments on the vehicle will be so it can make sure you can afford the vehicle you want to purchase.
- What about a down payment on your replacement vehicle? When your bankruptcy attorney files the Motion to Modify the Plan, the Court may allow you to use some of the insurance proceeds to pay down on the vehicle. This depends on how much debt is left to be paid in your plan.
So, if your car is totaled in a car accident, it isn’t the end of the world and you do have options. But, before you agree to anything or sign anything, talk to your bankruptcy attorney.
If you have been in a car collision that wasn’t your fault and you aren’t sure what you should do, Dennis and King are here to help you. We will take the stress away. Call us at (423) 892-5533. We can help, even if you don’t hire us.