What Happens if I wreck my car during my chapter 13 bankruptcy? Can I get another one? It's totalled!

Unfortunately, people do "total" or wreck their cars and trucks beyond repair during chapter 13 cases. When the vehicle is being paid through the chapter 13 plan, that can be a problem.

Option 1- if your insurance company declares the vehicle a "total loss," they will pay the lienholder for the value of the vehicle. If this is more than the balance due on the "secured claim" that remains owing to the lienholder under the plan, you are entitled to be paid the difference (assuming the vehicle was claimed as exempt). You then have your attorney file a "motion to modify" plan to take the vehicle out of the plan. You use the extra insurance money for a down payment, and get a trustee permission letter to use credit, and then finance another vehicle (or just pay cash for one if you wish).

Option 2- If you are unable to obtain another vehicle (and it otherwise makes sense), you can have your attorney file a "motion to substitute collateral," and use all of the insurance money, to buy another vehicle. You have the bankruptcy court order that the lien on the old, totalled vehicle be moved to the new vehicle. Then you continue to pay your plan payments, just as before. Notice: we have done this procedure many times, but it takes time, and it is not always easy. But it can be done.

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization