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What can I do if the vehicle paid in my Chapter 13 Plan has been damaged in an accident? If your vehicle has been involved in accident, the effect on your case will depend on whether you have insurance, and how much insurance will pay.

No insurance. If you have no insurance on the damaged vehicle, you will be responsible for repair of damages.  If you cannot pay for the repairs, or if the vehicle is not worth repairing, your plan may be modified to surrender the vehicle (or what remains of it) to the creditor with a security interest in the vehicle.  In many cases, that will allow your plan payments to be reduced by removing the remaining payments to the creditor secured by the vehicle. The creditor may claim that you have failed to maintain required insurance, and attempt to prevent any reduction in plan payments.


Insurance will repair the vehicle. If the vehicle can be repaired, you would be responsible for any deductible, but your plan would continue without changes.


The vehicle has been totaled. If the cost to repair the vehicle is greater than the value that the insurance company places on the vehicle, they will pay only the value of the vehicle. The creditor secured by the vehicle is first in line to get that payment. The creditor will not allow you to substitute a replacement vehicle as security for the loan.


Whether you will be able to keep any proceeds from the insurance will depend upon the amount paid, the balance of the loan, and the status of your case:


If the plan has not been confirmed, the court has not yet established the value of the vehicle. As a result we expect that the creditor will claim that the value is the amount being paid by the insurance company, and they will take all payment from insurance up to the full balance of their loan.


If the plan has been confirmed, the creditor may be bound by the amount allowed as their secured claim, which is often less than the full balance of the loan.


If proceeds remain after payment of the creditor, you will be entitled to those proceeds, up to the amount of the exemption you claimed on the vehicles in the schedules filed in your case. The Trustee may take proceeds which remain after payment of the creditor and your exemption, but in some cases Trustees have allowed this amount to be re-invested in a replacement vehicle if the amount above the exemption is added to your plan payments.


Recovery for other damages. If you will receive a payment for other losses you have sustained, this is usually considered post-petition income which may increase your disposable income. In Chapter 13, you must pay as much as you can afford to pay (your disposable income) for 36 months. You will need to talk with your attorney to determine what effect this will have on your plan. Before he can advise you, you will need to know how much you will be receiving, and when you will be receiving it. If you are going to retain an attorney to assist you in the recovery, you should advise him of the Chapter 13 case since he may need to be appointed by the Bankruptcy court.