How Bankruptcy Affects Auto Insurance

The amount of an auto insurance premium is determined by statistical data that predict the individual’s risk for a loss. Common factors that impact an insurance premium include year, make and model of the vehicle (e.g. more expensive cars are more expensive to repair and insure), the age and gender of the driver (e.g. a young male is statistically more likely to have an accident than a middle aged woman), and how the vehicle is used (e.g. driving a short daily commute is less likely to be in an accident than a traveling salesman).

Another predictor of risk used by 92% of all insurance companies is the individual’s credit score. Filing bankruptcy will drive down an individual’s credit score and will ordinarily increase insurance premiums. This begs the question, what can an individual do to keep his or her insurance rates low when filing bankruptcy?

The first and most obvious answer is, lock in your insurance rate before filing bankruptcy.  Instead of a six month auto insurance policy, consider one with a term of twelve months. Paying the policy in full prior to bankruptcy also reduces the chances of being canceled for a poor credit score. Credit scores are generally lowest immediately after a bankruptcy filing and will increase during the subsequent twelve months.

Another option is to do some rate shopping. Not every insurance company discriminates on the basis of credit, and some are more forgiving when it comes to personal bankruptcy. An independent insurance agent with connections to several different companies should be able to find a reasonable rate, especially if there is a good history of paying insurance premiums, no insurance claims, and no moving violations in the past three years.

Bankruptcy is often trading a short-term pain for a long-term gain. An experienced bankruptcy attorney can prepare you for some of the issues surrounding your bankruptcy filing and lessen the temporary sting.