Chapter 7 Buys Very Short Amount of Time to Get Vehicle Insurance

 Posted on March 31, 2025 in Vehicle Loans

When most people consider Chapter 7 bankruptcy, they usually think about it as a tool to clear overwhelming debt and restart their financial lives. That is certainly accurate, but Chapter 7 also offers other surprising benefits. One lesser-known way that Chapter 7 can help those in financial distress is as a way to buy the bankruptcy filer time to reinstate lapsed vehicle insurance. This is thanks to the automatic stay and its ability to block creditors from repossessing a vehicle — which they can do when the vehicle’s insurance has lapsed. Although this benefit almost always has a short time frame, it can help. An experienced Texas Chapter 7 bankruptcy attorney can provide advice on the benefits of Chapter 7 bankruptcy.

Are You Required to Have Car Insurance?

Almost every state requires vehicle owners to have at least a certain dollar amount of liability insurance coverage. Several states also require personal injury protection (PIP) insurance covering medical expenses from an accident for you, household members, and your passengers, regardless of fault. Still other states require uninsured and underinsured motorist coverage covering you when you are harmed by someone with no insurance or insufficient insurance.

In Texas, state law requires drivers to obtain bodily injury liability, covering injury-related costs to the other parties involved in an accident, and property damage liability insurance, providing coverage for property damage to the other vehicle.

As long as you still owe money to a lender for your car, your Texas lender will generally require that you have collision insurance covering damage to your vehicle in the event of an accident as well as comprehensive coverage against other types of non-collision events such as weather, damage, or vandalism. Your vehicle lender or lessor requires this insurance in order to protect your vehicle, which acts as its collateral on the loan it provided you.

Can a Lender Repossess Your Car If You Do Not Have Car Insurance?

Vehicle lenders and lessors get extremely concerned if your insurance coverage lapses. That is because, at any moment, their collateral could be totaled and become worthless. If you miss a payment deadline, the lender or lessor is only out a few dollars. But if you have no insurance, it is potentially out the entire loan or lease balance. This is why, as part of your loan or lease agreement:

• You must maintain insurance throughout the term of your loan or lease.

• Your lender/lessor must be named in your insurance as a loss payee (it gets paid if your vehicle is damaged).

• The collision and comprehensive coverages must be enough to cover the vehicle’s full value, with limited dollar amount deductibles.

• If your insurance ever lapses the lender/lessor can "force-place" insurance and make you pay for it.

As a result of such contractual requirements, your lender/lessor can legally repossess your vehicle whenever your insurance coverage lapses.

How Does Chapter 7 Buy You Time to Obtain Vehicle Insurance?

Chapter 7 stops a repossession of your vehicle, including for lapsed insurance. Almost always, however, the amount of time it buys you is very short. The moment you file a Chapter 7 "straight bankruptcy" case,  your vehicle is protected by the "automatic stay." This prevents your lender/lessor from repossessing your vehicle. That is true whether you are behind on monthly payments or whether your insurance has lapsed.

So if your vehicle insurance has lapsed before filing your Chapter 7 case, that filing buys you some time to reinstate your insurance. But, as the title of this blog post says, it usually only buys you a very short amount of time. Why is that? It is because the lender/lessor’s concern about losing its collateral is a legitimate one. The bankruptcy court respects that concern.

Lapsed insurance will encourage the lender/lessor to quickly file a motion with the court for "relief from the automatic stay." That is a formal request to be able to repossess the vehicle, in this case for lack of insurance. The court will grant that motion unless you have reinstated insurance by the time the court hears the motion. So – filing bankruptcy may only buy you a few more days or a couple of weeks to get insurance.

In the meantime, the lender/lessor can force-place its own insurance on your vehicle. It adds the cost of this insurance to your balance, and it is astoundingly expensive. Furthermore, force-placed insurance only protects the lender. You are still violating state law by driving uninsured. Plus, this cost will significantly increase the amount you need to pay to get current, potentially putting you further into debt.

What If the Lender Already Repossessed Your Car Before You File for Chapter 7?

If your car has already been repossessed due to a lack of insurance, you can also use the automatic stay to stop your lender from selling it at auction. However, you will have to act quickly in this scenario and file for bankruptcy before the car is sold, then obtain vehicle insurance to prevent the lender from filing for relief from the automatic stay. Once your car is sold, however, you are not able to get it back in bankruptcy.

What If I Cannot Pay for Car Insurance?

Given the short window of time that bankruptcy buys you to obtain car insurance before the automatic stay is likely to be lifted, opening the door to your car getting repossessed, you may understandably find yourself unable to pay for the car insurance in time to prevent the car from being repossessed.

In this case you also have the option to surrender the vehicle in Chapter 7. This may be a good option, particularly if the car is worth much less than what you still owe on it. If you can find a way to make this work transportation-wise, surrendering your car will free you not only from paying the car insurance but also from any payments on the debt.

Additionally, you will no longer be responsible for paying for the car’s "deficiency balance," the difference between what the lender gets after selling your car and any amounts you would still owe on the debt.

Call An Experienced Boerne, TX Chapter 7 Bankruptcy Lawyer

Filing for Chapter 7 bankruptcy will prevent your vehicle from being repossessed for lapsed insurance. But the amount of time the filing buys before you need to reinstate the insurance is quite short. If you are concerned about losing your car due to lapsed vehicle insurance, the experienced San Antonio, TX Chapter 7 bankruptcy attorney at the Law Offices of Chance M. McGhee can explain whether and how filing for Chapter 7 bankruptcy can buy you time to keep your car. Call our offices at 210-342-3400 for a complimentary consultation.