How Does Bankruptcy Affect Your Auto Insurance Rates?
Auto insurance rates are based on many factors, most of them pertaining to the record of the individual purchasing the coverage. Driving history, the type of vehicle, other insurance currently in force, and the area where the insured lives all play a role in determining the amount paid in monthly premiums. The credit worthiness of the individual is also taken into consideration, and a bankruptcy does much to limit what one can do in terms of securing affordable financing.
Filing for bankruptcy can also affect a person’s auto insurance rates for years to come. The credit score is immediately affected by the filing of either a Chapter 7 or Chapter 13. Both of these legal strategies severely limit the individual’s ability to purchase a new vehicle, and many insurance providers will deny liability and collision coverage because the bankruptcy indicates a financial shortcoming.
Insurance Companies And Their Rules
Not all insurance providers structure their policy rates exactly the same way. Those companies that offer all types of insurance will often extend policies to families for the protection of property, real estate, health and automobile liability. Because the family is purchasing various insurance types, the risk factor is measured differently than when a company specializing only in car insurance looks at the driving history of an individual.
However, there is no denying that more and more insurance providers are using a credit score as a major factor in determining rates for drivers. Recent studies have indicated a simple correlation between credit scores and insurance payments. Those who have a history of bad credit are less likely to keep a policy current.
These individuals also tend to be more careless when it comes to driving habits. Federal law prohibits the denial of required insurance based solely on credit score, but those who have defaulted on credit card accounts or personal loan agreements will nearly always pay more for liability and collision coverage.
Bankruptcy And Insurance Rates
Filing a Chapter 13 is less of a problem when it comes to auto insurance because the individual is making plans to repay all debts within a time frame of several years. While it is true that this bankruptcy remains on the credit report for up to 10 years, obtaining insurance at favorable rates may still be possible so long all terms of the court agreement are followed to the letter.
Filing a Chapter 7 bankruptcy is more complicated, and the procedure has far deeper consequences. Creditors cannot harass an individual who has filed a Chapter 7, but the individual’s assets are not protected. A trustee is appointed and oversees the monthly payments made by those who have filed a Chapter 7.
If the person filing a Chapter 7 bankruptcy is currently insured and has maintained a good payment history, chances are the insurance rates will not increase immediately. Many insurance providers want to see how the bankruptcy affects the insured’s ability to pay the current rate. However, many insurance companies perform an annual financial review on all of their policyholders, and those who have filed either a Chapter 7 or Chapter 13 may be subject to a rate increase the following year.
For the most part, insurance companies treat bankruptcy much the same way as they would an automobile accident. The person who causes a vehicle accident is considered less responsible and therefore a higher risk. The person who files bankruptcy is considered less financially stable, and he or she is more likely to have additional financial problems in the future