What Can I Do if My Car Is Totaled in a Chapter 13 Bankruptcy?

If the cost of repairing your vehicle after an accident is close to or more than the cost of replacing it, the insurance company will usually total your car -- it will deem the car a total loss and send you a check for the vehicle's current value. Normally, you can use the check to repair your vehicle yourself or make a down payment on a new vehicle. If you are making payments through a Chapter 13 bankruptcy, however, you may not get the money, as it may go directly to your lender.

If you total your vehicle while your Chapter 13 is open, you may be able to modify your bankruptcy plan so that you surrender your totaled vehicle to the bank rather than continue to make payments on the vehicle. However, bankruptcy courts often will not allow you to modify your plan once it has been confirmed by the court. Your attorney can tell you whether the bankruptcy court is likely to accept such a modification. In some cases, you may keep the check and ask the bank to modify its proof of claim against you so that you can lower your monthly payments and possibly purchase a new vehicle.

Some banks will require you to surrender any insurance settlement. If the insurance settlement does not cover the balance you owe on your vehicle, the bank can require you to continue making payments on the vehicle through your Chapter 13 plan until you pay off the balance you owe on your vehicle. You will lose the right to access any of your check, but will be able to pay off your vehicle as planned.

In some cases, the bank will allow you to use your insurance check to fix or replace your vehicle. If the bank allows you to do this, it puts a replacement lien on the new or rebuilt vehicle. This lien obligates you to continue paying the bank until your original loan is paid off under the terms of your Chapter 13 bankruptcy plan.

If your car is totaled while you have an open Chapter 13 bankruptcy, contact your attorney immediately. Your attorney can help you determine your best course of action to get your vehicle repaired or replaced while satisfying the terms of your Chapter 13 bankruptcy. In some cases, your attorney may also file motions on your behalf to get the court to accept a modified plan or allow you to keep your insurance check.