Bankruptcy And Home Owners Insurance Claims
When you file for bankruptcy, all of your property that is not otherwise exempt, may be taken by the bankruptcy court. Thankfully, most people’s property is almost always exempt—and if it isn’t there is always the option of filing Chapter 13 bankruptcy, where you won’t lose your property.
But what many people don’t know is that you can lose property you don’t actually physically have yet, but which may be due or owing to you in the future.
That’s called a contingent claim, and it usually happens in the context of lawsuits. For example, if you sue someone, and the case is still going on, you could win money later on. Even though you don’t know if you’ll win, or how much you may win, the bankruptcy court can still claim your lawsuit once you file for bankruptcy. If and when you do win the case, the money would go to your creditors-not to you.
Homeowner’s Insurance Claims
It’s one thing if you have, for example, a personal injury case, and you stand to lose whatever you may win. But what if you have a homeowner’s insurance claim? What if the money you stand to win in your lawsuit or claim, can be taken by the bankruptcy court? That isn’t luxury money—that’s money you need to fix your home, which the insurance company may owe you.
The good news is that if the insurance claim relates to or is intended to fix or repair something related to your homestead property, you may be able to exempt or protect that money, the same way that you can protect the equity in your actual homestead. You can argue to the court that the money is going straight towards the homestead, to make the homestead “whole” again, and thus, cannot be taken by the court.
This argument would only work, however, for homestead property—not second homes or investment properties.
Additionally, if the insurance claim is covering or paying for personal property inside the home, that could be an issue, as the contents of your home are not exempt the same way that the home itself is.
What About Future Insurance Policies?
By the way-if you are concerned about how a bankruptcy could affect your homeowners insurance, an insurance company cannot cancel your policy just because you file for bankruptcy. But insurance rates are based on credit, and some insurers may raise your insurance rates.
This is why if you can, you may want to time your bankruptcy until right after you renew a homeowner’s policy. That way, by the time it’s time to renew again a year later, your bankruptcy would have been on your credit for awhile, and you will have time to raise your credit score up again.
Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today to see how your bankruptcy will affect you, and the positive effects it can have on a financial fresh start for you and your family.