The relationship between car insurance and bankruptcy may not be obvious but it affects premiums indirectly. Insurers care greatly about your financial well being because they don’t like poor policyholders who are most likely to claim for every little thing that happens to their automobiles. The indicator that shows your financial position is your credit history and insolvency is a major drag on your score.
Being declared insolvent will tank your credit score and it will in turn affect your auto insurance rates, as credit is one of the key factors that influence premium calculations with most insurers.
Once an insurance company agrees to insure a vehicle and its drivers they are committed to paying for damages caused and sustained by the policyholder as long as there is coverage for the damages. That is why they like to find out as much as they can about an applicant and take everything into consideration while they calculate the premium quote.
Can I Get Car Insurance with a Bankruptcy on My Record?
There are a few things you cannot do when you are declared insolvent, like running your own business. But most people need a vehicle and insurance for it to get on with their lives and get to work. Carriers don’t want auto insurance lapses due to nonpayment. They prefer customers who keep their policies and stay with the company for years. Saying that, insurers are unlikely to refuse coverage for insolvent drivers. However, they will certainly make you pay higher premiums.
Auto Insurance and Bankruptcy
Unfortunately, filing for bankruptcy is the last step for most people. They usually know what it means for their finances but there is no way out. Then, the next step is to deal with totally erased credit history and its implications on your finances and insurance policies.
If you file for bankruptcy, your automobile insurance premium is going to go up for sure but when and how much depends on your current coverage. If you currently have coverage you will probably not see the rate increase immediately after being declared bankrupt. However, you will probably see how expensive car insurance for bankrupts can be starting from your next renewal.
Depending on your insurer and how low your credit score will go down you may face auto insurance nonrenewal. Being declared bankrupt means that you cannot pay your debts and meet your current financial commitments. A few insurers prefer not to sell policies to people with serious money problems and it cannot get any worse than defaulting on your payments.
The reason why insurers aren’t keen on selling auto insurance for bankrupts is the fact that your money shortage problem will affect your claim decisions. When you have no money to pay for anything out of pocket you will want other sources to pay your vehicle damages and insurance is the most logical one. That is why most carriers would give a pretty expensive vehicle insurance quotes for people with poor credit, refuse to offer any quote or even refuse to renew an existing policy.
How Long Does Bankruptcy Affect Car Insurance Rates?
Chapter 13 bankruptcy lasts seven years before it is deleted from your records and chapter 7 bankruptcy is deleted 10 years from the filing date. Both are very long time in a human life. All along your credit score will be extremely low and therefore bankruptcy affects vehicle insurance costs considerably with most insurers because most checks credit.
Furthermore, it may take a little longer for the insolvency to be removed from your credit history. And it is unlikely that everything will be great shortly after that. It takes a while for the credit scores to recover from something as big as being declared insolvent.