I had a car accident after filing a Chapter 7 bankruptcy. What do I do now?

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Written by Andrea Wimmer, Esq.  
Updated January 6, 2020

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This article will explore what steps to take if you get in a car accident after filing a Chapter 7 bankruptcy. Since the accident happened after your filing date, also called the petition date, the bankruptcy trustee will not be able to take any personal injury settlement you may be entitled to as a result of the accident. They can only to that if the accident happened before your case was filed (pre-filing) and there are no exemptions to protect the personal injury settlement or award.

First things first...

You’ll have to make a claim with your insurance company. Since they may need to coordinate the property insurance aspect of your claim with the trustee, make sure you have your case information (case number and date of filing) and the trustee’s name and contact information handy to provide to the adjuster. Even though the accident happened after the filing date, the car itself existed when your case was filed. If it was paid off at the time, you can keep only that portion of the property settlement that you were able to protect using an appropriate exemption. The rest will have to be turned over to the trustee so it can be distributed to your unsecured creditors

Consider speaking to a bankruptcy attorney to make sure that the exemption you claimed to protect your interest in the vehicle covers any insurance proceeds you receive as a result of the property settlement. If not, you may need to amend your Schedule C (Exemptions) to ensure your property settlement is protected to the greatest extent possible. Additionally, depending on how soon after filing the accident happened, the trustee may ask you to amend your Schedule A/B and Schedule C. Upsolve users can email help@upsolve.org to get help preparing the amendment.

What if I still owe money on my car? 

If you have a loan on your car, make sure you notify your lender about the accident and provide them with the relevant insurance information. They should already know that you’re in an ongoing Chapter 7 bankruptcy, but it can’t hurt to provide them with the information again. 

Any property settlement you’ll receive for the vehicle will first to go paying the loan. If the payout is greater than the loan balance, you will get the rest, up to the amount of the allowed exemption. Since cars lose their value so quickly, chances are you won’t get more than the loan balance plus the exemption amount. If you do, any payout above that amount has to be sent to the trustee. 

If the insurance payout doesn’t pay off the full balance of the loan, don’t panic: your bankruptcy discharge will protect you! 

If you initially planned on keeping the vehicle and reaffirming the car loan, you should update the court by filing an amended Statement of Intentions as explained in this article. If you’re an Upsolve user, send an email to help@upsolve.org to get assistance with preparing the amendment. 

If you’ve already signed a reaffirmation agreement, it’s important that you act quickly to rescind (cancel) the agreement. You only have a short period of time to do so after the court approves it. Otherwise, you may end up on the hook for the loan balance that wasn’t covered by your car insurance or any gap insurance you may have had.

Conclusion

Getting into an accident while in an ongoing Chapter 7 bankruptcy doesn’t have to be a complete nightmare. Make sure your insurance company, the trustee, and the bank (if you have a loan) have all of the information about the accident. Then go back to making sure you and yours are taken care of. While a property settlement from the insurance company may have to be paid to the trustee, any personal injury settlement you’re entitled to as a result of the accident is yours to keep. 

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