Homeowners Insurance Claims and Rates After A Bankruptcy

There are two things in life that everyone tries to avoid: property damage that is so severe that an insurance claim is required and bankruptcy itself. But it's not uncommon for both to occur. In the event of bankruptcy, how would it influence your claim for property damage?

Declaring an Insurance Claim for a Household

Even if you haven't received any insurance money, and even if the amount of the insurance claim hasn't been assessed, your property damage claim is an asset that could be lost in bankruptcy.

Unless you notify a bankruptcy court of your claim for homeowners insurance, you may lose your right to pursue it.

In theory, you give up all of your assets to the bankruptcy court when you file for bankruptcy. The bankruptcy trustee, not you, may have the power to file a homeowners' claim on your behalf if you hire a bankruptcy attorney to help you understand the repercussions of bankruptcy. The trustee may do so if you don't want to file a claim instead.

Keeping the Profits Safe

The value of your homestead can be protected (exempted) during bankruptcy proceedings. As a result, the insurance money may be excluded (protected) in the same manner that your homestead property would be protected in bankruptcy if you sue your homeowner's insurance company.

Investment properties like second houses and vacation homes are not considered homesteads; thus, this rule doesn't apply to these losses.

Because up to a specific value (between $1,000 and $4,000), personal belongings are not protected from bankruptcy courts, a homeowner's claim for any form of personal property inside the residence could result in that money being removed.

A key issue revolves around whether or not the insurance money is "replacing" or fixing property that would otherwise be shielded from bankruptcy courts. If this is the case, then the insurance money is likewise safe.

Insurance and Bankruptcy

What is your current policy? If you file for bankruptcy, your home insurance will not be canceled. Your insurance company may hike your premiums or refuse to renew you when your existing policy ends.

When you file for bankruptcy, you may see an increase in your insurance premiums because of the damage done to your credit. According to studies, those with poor credit are more likely to file claims.

If you can't receive insurance after bankruptcy because you have a mortgage, your lender may buy force-placed insurance for you. Because of the high cost of force-placed insurance

As soon as you renew a policy, it may be best to promptly file for bankruptcy to have a full year to repair your credit. Selecting an insurance company that is less likely to terminate your policy because of bankruptcy is another option.