Does bankruptcy cover your debt from being sued by an insurance company?

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Things to remember...

  • In certain cases, bankruptcy will cover debt from being sued by an insurance company
  • If you’re considered at-fault in the auto accident, and you’re being sued in excess of your insurance policy limit, it may be possible to discharge your debt from damages sought by an insurance company
  • Not all debts resulting from auto accidents will be discharged in bankruptcy

In some cases, bankruptcy may cover your debt from being sued by an insurance company. People involved in a car accident are sometimes sued for damages by another driver or family of the driver injured or killed in the auto accident.

If the auto accident didn’t involve a DUI or DWI, and the estimated claim of the lawsuit is calculated into a Chapter 7 bankruptcy petition, it’s possible to discharge personal injury damages that the insurance company claimed.

Compare your premium rates with auto insurance quotes from other providers by entering your zip code into our online comparison tool above!

How do lawyers answer this question?

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Auto insurance laws can vary state to state. Below are some varying accounts of how different lawyers address the question of bankruptcy and an insurance company attempting to sue.

The bottom line is that you will need to find your own attorney to evaluate the circumstances of your case.

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Why do some lawyers say some debts cannot be discharged in bankruptcy?

Not all debts resulting from auto accidents will be discharged in bankruptcy, according to author Roderic Duncan in “Win Your Lawsuit: Sue in California Superior Court without a Lawyer” (2010). If an insurance company sues for damages resulting from

If an insurance company sues for damages resulting from drunk driving, your debts might not disappear in a bankruptcy petition.

If drugs, alcohol or reckless driving resulted in serious injury, real property liens placed by the insurance company to satisfy a legal judgment won’t go away after you petition for bankruptcy.

Why do some lawyers say these debts will be discharged in bankruptcy?

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Attorney Derick C. Villanueva of Georgia disagrees with Roderic Duncan. He says that Chapter 7 of the United States Bankruptcy Code discharges debts “for personal injuries or death caused by the debtor’s operation of a motor vehicle while intoxicated.”

That’s why Attorney Villanueva concludes that an auto accident due to driver error is likely to be dismissed in Chapter 7 bankruptcy.

Harley Feinstein, a California attorney, concluded that an insurance company might eventually settle the damages sought within the driver’s existing auto insurance policy limits.

If the insurance company knows that the driver has little or no financial assets and that she may seek protection under the US bankruptcy laws, there’s little reason for the insurance company to sue the driver for damages about the policy limits.

In this scenario, the driver’s insurance company acts in bad faith by not settling the claim at the policy limit. The driver might pursue a claim against her insurance company in this instance.

Attorney Mark C. Blane, licensed to practice in California, says that it’s likely that a driver’s debt that results from an insurance company lawsuit will be discharged in personal bankruptcy.

However, the individual must first qualify for bankruptcy protection.

Chapter 7 enables unsecured debts, such as an insurance company judgment or credit card debt, to be discharged.

If a motorist has significant financial assets, Chapter 7 may not provide the most practical financial protection from the insurance company’s claim or lawsuit.

How do I protect myself from this situation?

Auto insurance can’t restore a loss of life, but it can pay for medical expenses and property damage. Purchasing your state’s lowest legal auto insurance limits may cost less, but purchasing higher auto insurance limits affords greater financial protection when an accident occurs.

There’s never been a better time than right now to compare your auto insurance rates. Maybe you want to buy more auto insurance coverage but money is tight.

Getting competitive auto insurance quotes lets you see how much your dollar will stretch to purchase greater auto insurance protection. Start by entering your zip code now!

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