This blog post concerns the very practical topic of keeping motor vehicles insured, especially during a pending Chapter 13 bankruptcy case. Of course, it is always appropriate to maintain collision insurance on a motor vehicle, but the local rules of court in the Bankruptcy Court for the Eastern District of North Carolina provide even more incentive for clients in Chapter 13 cases.
For instance, Local Rule 4001-1(a)(4) states that secured creditors may contact a debtor about the status of insurance coverage on property securing a claim. Contact limited to the insurance question will likely not be construed as a violation of the automatic stay imposed by the bankruptcy case. Furthermore, Local Rule 4002-1(g)(7), which applies to Chapter 13 clients, states as follows:
“(A) The debtor shall keep the property of the debtor and the bankruptcy estate insured in a manner and to the extent as may be deemed necessary, with loss payable clauses, in the case of pledged or mortgaged property, in favor of the appropriate secured creditors as their interests may appear.
(B) The debtor shall ensure that any vehicle, if it is property of the debtor or property of the estate and is required by a security agreement, lease or other similar agreement to be covered by collision insurance, is not driven, unless the vehicle is so covered.”
It is important to know that any lapse in vehicle insurance may be grounds for a creditor to file a motion for relief from the automatic stay in a bankruptcy case. Those motions can often be resolved outside of court by re-instating the insurance or by obtaining new insurance coverage as quickly as possible. Sometimes, though, the attorney’s fees and costs for filing the motion for relief from stay also must be paid as an additional cost in the Chapter 13 plan payments. Thus, it is better to never have a lapse in insurance in the first place or have insurance back in place as soon as possible if a lapse occurs.
We encourage our clients to keep insurance in place or park the vehicle and let us know if there ever is a lapse in vehicle insurance, so we can discuss an appropriate course of action. Otherwise, sometimes the first we as attorneys know about a lapse in insurance is when a motion for relief from stay is filed with the court and then it becomes more difficult to resolve.