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How Auto Accidents are Treated While in Bankruptcy



If you get into a car accident after filing for bankruptcy, you may wonder how your bankruptcy trustee will treat the incident. This will depend upon what type of bankruptcy you’ve filed for – Chapter13 or Chapter 7.

According to Bankruptcy Code Section541(a),once you file for bankruptcy, he has essentially created a type of estate (a.k.a. a bankruptcy estate). This estate consists of all your legal and equitable interests regarding property that you owned when filing for bankruptcy.

Chapter 7 bankruptcy…

If you’re a debtor who’s filed for Chapter 7 bankruptcy, then gotten into a car accident afterward, then this accident isn’t considered a part of the bankruptcy estate.Therefore, your bankruptcy Trustee will have nothing to do with any of its administration. However, any damages incurred by the vehicle are subject to liquidation.

If you receive any money from being in the accident (e.g., money for medical bills or repair in your car),it typically won’t be considered part of your bankruptcy estate. However,if your car is considered a total loss and you still owe money on it, you can typically wipe out the loan as part of your bankruptcy discharge when an accident happens after filing for bankruptcy. Unfortunately, the opposite isn’t true: You can’t include any debts that you owefrom the car accident in your bankruptcy discharge. You’ll need to either have your bankruptcy dismissed so that you can file again or wait 6 – 8 years to file again. This is assuming that you weren’t engaged in any misconduct (e.g., driving whileimpaired) since filingfor bankruptcy won’t help in these situations.

Chapter 13 bankruptcy…

If you file for chapter 13 bankruptcy and then get into a car accident, you’re subject to Bankruptcy Code section 1306.According to this, any property that you obtain while in bankruptcy is part of your bankruptcy estate.Therefore, any money that you receive in an accident is subject to seizure by the Chapter 13 bankruptcy Trusteeso that it can be distributed to your creditors.

If you get into a car accident, make sure that your insurance company pays your lienholder the balance that’s due on the claim.This may be less than what’s shown to be due,but then you’llreceive the difference.Your other option is to have your attorney go through the hassle of filinga Motion to Substitute Collateral. When you do this, the bankruptcy court will order that all or part of your insurancemoneyis used to purchase another vehicle.Your line will then be placed on that car in the same amount as your previous vehicle.If you choose to go this route, you’ll continue to pay the same amount for your vehicle throughout the remainder of your payment plan.

AMotion to Substitute CollateralIs beneficial if you find yourself in need of another vehicle, but you’re unable to afford financing.While following this motionpicks up a bit of work on your attorney’s part, this is something that many daughters have been allowed to do.If you choose to go this route, make sure that your attorney watchesyour casecarefully to ensure that you get all of the money you’re owed by the insurance firmthat’s responsible for the payout.


To know for sure what will happen if you are in a car accident after filing for bankruptcy, don’t want to talk to your lawyer. Unfortunately, many lawyers are out of touch with their clients. This is something that never happens when you’re a client at the Weller Legal Group in Clearwater, FL. So, if you’re thinking of filing for bankruptcy, contact us today.

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