Will Bankruptcy Affect Home Insurance Rates?
The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13 under the Bankruptcy Code, located at Title 11 of the United States Code.
Chapter 7 Bankruptcy: basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available.
In Chapter 7, the debtor surrender non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor’s unsecured creditors. In exchange, the debtor is entitled to a discharge of some debt; however, the debtor will not be granted a discharge if he or she is guilty of certain types of inappropriate behavior and certain debts (spousal and child support, student loans, some taxes) will not be discharged even though the debtor is generally discharged from his or her debt.
Under chapter 7 bankruptcy, if your house is sold you will need to terminate your home insurance since there will be no house to insure.
Chapter 13 Bankruptcy: rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy.
In Chapter 13, the debtor retains ownership and possession of all of his or her assets, but must devote some portion of his or her future income to repaying creditors, generally over a period of three to five years. The amount of payment and the period of the repayment plan depend upon a variety of factors, including the value of the debtor’s property and the amount of a debtor’s income and expenses.
Under chapter 13 bankruptcy, you will be making installment payments to a chapter 13 trustee. The chapter 13 trustee receives the payments and pays off your creditors over time. You must maintain reasonable amount home insurance coverage.
Bankruptcy and Home Insurance Rate
A personal bankruptcy will stay on your credit report for up to 10 years. Insurance companies do not look at your credit report when determining your home insurance rate. Your home insurance rate is determined by your house value, the location, neighborhood and the risk it represents to insure.
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