Many New York bankruptcy debtors own cars and the mandatory insurance that goes along with them. Naturally it’s common for them to wonder what will happen to their auto-insurance premiums when they file bankruptcy. Will they go up? If so, what alternatives do debtors have?
The short answer is yes, most auto-insurers charge increased premiums to debtors after bankruptcy.
As to why: Most auto insurers can and do check debtors’ credit scores. The reason they do so unclear. After all, creditworthiness doesn’t directly play into the statistical factors that insurers look at for assessing the risk that a debtor will make a claim: driving history, place of residence, car characteristics, age and gender of the driver, and annual mileage. So why should rates go up? The best answer is that it makes insurers uncomfortable. Seriously. They appear to believe that poor credit contributes to a higher likelihood that debtors will file unnecessary claims or that there’s a relationship between debt and driving ability.
Some auto insurers, however, don’t check debtors’ credit reports and charge accordingly, which means a bankruptcy will not affect the size of their premiums. Possibly 8 percent of auto-insurance companies make this business decision. Many others don’t check insureds’ credit reports continuously, so some debtors don’t see the bump until several months after they file bankruptcy or when they renew their policies.
Debtors have a few alternatives to either eliminate or mitigate the higher insurance premiums from a bankruptcy notation on their credit scores. One is to change insurance companies to one that doesn’t run credit checks. This might be easier said than done because insurance agents don’t necessarily know (or can find out) whether their businesses adopted that practice.
Another more practical and less time-consuming option is for debtors to try to lock in their current rates for longer periods. Typically car owners pay auto-insurance premiums twice per year, but with some insurers it’s possible to arrange to pay them once per year. Doing so will set the same rate for a longer period.
Debtors can also try to take advantage of other policy features that might reduce their rates. Obviously changing one’s age or sex won’t be a viable option, but insurance companies have programs that debtors can participate in to reduce their premiums, such as installing Bluetooth tracking devices in debtors’ vehicles to check their mileage.
The one thing an insurance company cannot do is deny debtors an insurance policy because of a bankruptcy.
It’s unfortunate that bankruptcy can affect unrelated expenses like auto insurance, but it often does. If you are experiencing serious financial difficulties then talking to an experienced New York bankruptcy lawyer can help you strategize your options and give you resources for budgeting after bankruptcy.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.
