I’m back after a long hiatus, and bankruptcy questions have been piling up. This one is about bankruptcy and car insurance. Understandably would-be filers are asking “does bankruptcy affect car insurance”?
In most states it can. This is because most states allow car insurance companies to factor in credit scores when determining rates. So, a bankruptcy could very well raise your insurance premiums. Or, you may even be denied coverage.
However, I think it’s necessary to point out that the vast majority of folks who file bankruptcy have a lousy credit score to begin with. It is rare for a filer to have an acceptable credit score, much less a stellar one. In fact, filing bankruptcy might even raise credit scores for people who haven’t been paying their bills.
Also, some states, such as California and Massachusetts, forbid the use of credit scoring to determine your rates. Many other states have tried to fight it also, but, in the vast majority of states, using your credit score for insurance purposes is still legal.
Some companies (again, except in states where this is illegal), can drop your auto policy if you are in default on a debt you have with them. For example, I had USAA insurance and I also had a USAA credit card that I included in my bankruptcy petition. Because I live in California, USAA could not drop my car insurance, but they would have if I lived in a state that allowed it.
It's just wrong that if you file bankruptcy, car insurance companies are able to use your credit score to charge you higher rates or deny you coverage, even if you’ve never lapsed. Fortunately, there are still plenty of carriers that do not use credit scores to determine eligibility or rates, regardless of where you live. For the best rates, you just need to shop around. You can even get a car insurance quote online.
As always, this and other issues regarding your bankruptcy should be discussed with a competent bankruptcy attorney. I am not a lawyer.
Good luck to all who need a fresh start,ep