I is for Insurance

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I is for Insurance

Homeowner’s Insurance, vehicle insurance, renter’s insurance, life insurance, medical insurance, and even pet insurance are subjects of questions often posed by people considering bankruptcy. What happens to the policies you have?  Why do you need to know about the insurance?  If you no longer want to keep the property, do you have to maintain insurance?  Why?  It is often difficult for attorneys to impress the importance of disclosing ALL financial matters to the Court and to the attorney, but attorneys try.  One of those financial disclosures is insurance policies.  Insurance is not only a monthly expense, but it is also a source of protection of your estate.  So, let’s address the specifics:

Q. What does the attorney need?

A.  Every attorney is going to provide different instructions, but Collum & Perry requests a statement showing your payment and a copy of the insurance policy Declarations Page.

Q. Will the insurance company cancel my policy?

A. There is no law requiring that to happen and our office has never seen it happen.  That does not mean, however, than an insurance company can decide that it no longer wants to issue a policy.

Q. Does filing bankruptcy impact my price?

A. That depends on the comapny.  Most vehicle insurance policies base your cost for insurance on a separate, but related, credit score from FICO.  More information about that credit score is available here, at LexisNexis.  We suggest that all people, regardless of bankruptcy, call around once a year to price policies.

Q. If I no longer want to keep the property, do I have to maintain the insurance?  Why?

A. Yes!  Insuring property has nothing to do with desire to own property, but with ownership itself.  As long as you own property that is either required by law to be insured (vehicles) or that could be the source of injury to someone else (real estate), you should maintain a policy.  While many people file bankruptcy to dispose of houses they cannot afford and/or no longer want, it may take the bank years to go through the procedures to take possession of the property.  While it can be frustrating, Collum & Perry always recommends that clients maintain insurance coverage UNTIL the property changes ownership.

Q. I stopped paying insurance and the bank is now saying I owe five times as much for their policy?

A. The bank has placed forced-placed a policy on you.  Get your own policy ASAP!  The forced-placed policy does NOT protect you from personal liability, it does not protect your possessions, and it is not for your benefit.  It is solely to protect the bank’s interest.  The bank will bill you for this WAY overpriced insurance and if you need the insurance, you’ll likely come up empty handed.