A chapter 13 bankruptcy plan lasts from three to five years. A lot can happen in five years, including wrecking your car. If the car is not totaled, then there is usually no reason to involve the bankruptcy court. In this situation, your insurance company sends a check to the repair shop and the shop repairs your car. You usually only need to pay your deductible.
If your insurance company deems the car a total loss, meaning that the cost of repairs is higher than the car’s value, then there are some things you or your attorney must do to comply with the bankruptcy rules.
If you still owe on the car
If the car is not paid off, the insurance company typically issues a check for the car’s value. Depending on your jurisdiction, the insurance company may send this check directly to the lien holder or may send it to the Chapter 13 Trustee, who in most cases will send the funds to the lien holder. If the insurance check is less than what you owe, you may need to modify your chapter 13 plan.
If you have paid the car off
If there is no lien holder, the insurance company usually sends the check directly to the Chapter 13 Trustee. Depending on the jurisdiction, the trustee may send these funds to you, or you may need to file a motion requesting that the trustee turn the money over to you so you can buy another car.
If you need to finance another car, you will need an order from the bankruptcy court allowing you to incur new debt. This can take time, so be sure to tell your bankruptcy attorney right away.
