Help! Totaled My Car During My Chapter 13 – What Happens Now?

Bankruptcy Lawbooks
Once in a while, one of my Chapter 13 bankruptcy clients here in Houston “total” or totally destroys their car or truck during their Chapter 13 case. Not intentionally! But it happens, someone runs a red light and “T-Bones” them, or whatever. Anyway, if there is still a loan or a lien against the vehicle, and the vehicle is being paid through the Chapter 13 plan, what the heck happens?
Well, it depends. The easy way, is to have your insurance company pay the lienholder the balance due on the secured claim, according to the Chapter 13 Trustee’s records. This can be much less than what shows to be due, according to the lienholder’s or finance company’s records. Then you should receive the difference. Example: You wreck your truck, and either your insurance company or the other driver’s insurance company, agrees to pay you $11,000, but of course the lien has to be paid off.
If the truck is being paid through your Chapter 13 plan, and according to the Trustee’s records, there is only $8000 left on the secured claim, then that is all the lienholder is entitled to. You should receive the difference.
Another alternative, is to have your attorney file a “Motion to Substitute Collateral.” This is not so easy, but it can be done. The Bankruptcy Court can order that part or all of the insurance money be used to buy another vehicle, and put the lien of the lienholder on that vehicle, in the same amount that it was. And that amount continues to be paid through the plan from your plan payments.
This option is particularly useful where you are going to need another vehicle, but you are not going to be able to get financing. The Court can basically put the lien that was on your wrecked vehicle, onto the new vehicle. There are a lot of court cases where this has been permitted, and none that I know of, that denied a debtor the right to do this.
If you are just going to go with option 1, above, then you will want to have your attorney file a “motion to modify plan” so that the lienholder does not continue to receive payments through your plan, after they have been paid off.
If you are in the Houston Texas metro area, and need help with your debts, don’t hesitate to give my office a call at 713-772-8037, or visit my main website at