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Compare car insurance after bankruptcy
Learn how to minimize a hit to your premium after filing for chapter 7, 11 or 13.
Because bankruptcy affects your credit score, expect raised insurance rates in states that use your credit to determine risk. However, you could lower how much you pay by rethinking your coverage needs, shopping around with different providers and opting into usage-based car insurance.
How does bankruptcy and your credit score affect car insurance?
A lower credit score from bankruptcy affects car insurance rates because many companies use your credit score to set risk. To them, a low score could mean you won’t pay premiums, which can lead to lapsed coverage and risky, uninsured driving. Using credit scores for insurance has proven controversial in California, Hawaii and Massachusetts where this rating factor is banned.
Bankruptcy won’t affect your credit score and insurance rates forever. How long it takes for your credit to bounce back will depend on the type of bankruptcy:
- Chapter 7. This bankruptcy may hit your credit hard since it stays on your credit history the longest. You can expect a car insurance rate increase. However, you might have given up your new car for an older one to repay debts, which could offset that increase a bit.
- Chapter 11. This filing lets you restructure and renegotiate terms with creditors, but it still sticks with you for a solid 10 years. Since you’re not giving up assets like your car, you might not find much grace with your insurance premium unless you improve your credit score.
- Chapter 13. When filing to repay debts with a monthly payment, your credit score still takes a hit. But this bankruptcy stays on your credit history for seven years, rather than 10. It could mean you won’t deal with higher rates as long.
How much does bankruptcy affect car insurance rates?
If you had good credit before your bankruptcy, you could see your score drop by a whopping 100 points. Based on previous research by finder.com, that kind of hit can increase your rate as much as $1,000 a year.
For example, a driver with poor credit might pay $5,652 per year for insurance while the average driver pays $4,284. That’s an increase of $1,368 per year above the average.
However, consider that the opposite is true—increasing your credit score could drop your premium significantly too.
How do I find a car insurance company that doesn’t care about bankruptcy?
High risk insurers or nonstandard car insurance companies are a good option if you’re having trouble getting insured after declaring bankruptcy. These companies accept applicants with higher risk, including drivers with poor credit or a history of nonpayment.
You won’t have to worry about poor credit after bankruptcy if you live in California, Hawaii or Massachusetts. These three states prohibit insurers from weighing credit scores to determine premiums. A lower credit score after bankruptcy won’t hurt your car insurance rates in these states.
Compare car insurance rates after bankruptcy
How to get cheap car insurance after bankruptcy
A hit to your credit score won’t necessarily leave you with sky-high rates. Look to lower your premium with seven tips designed to help you save.
- Shop around. Any change to your credit history could mean it’s time to look for another provider, preferably one that’s lenient with your bankruptcy.
- Rebuild your credit. Take simple steps to improve your financial health, like committing to on-time payments, lowering your overall debt and avoiding new credit accounts.
- Let your driving record shine. Keep your record clean by obeying the speed limit and practicing caution when on the road.
- Consider telematics. Many insurers today can track your safe driving habits through a smartphone or device, with possible discounts on your premium.
- Look for discounts. You may qualify for rate savings if you take a safety course, refer a fellow customer or own a home. Some insurers allow you to stack your discounts.
- Bundle your policies. Get a reward by pulling together all your insurance needs with the same company.
- Reduce unnecessary coverage. Look into what coverage you can do without, like auto replacement on an older car or medical payments if you have strong health insurance. Consider keeping broad collision and increased liability coverage for fewer out-of-pocket costs if you’re in an accident soon after your bankruptcy.
How do I update my car insurance after bankruptcy?
Most insurers allow you to update your policy coverage in a few simple steps:
- Log in to your online account or insurer’s app or call your insurance company.
- Add or delete coverage that meets your driving needs and new financial situation.
- Review and confirm your new rate.
You may see a rate increase immediately or with your next insurance renewal to reflect your bankruptcy. Ask your insurer how long you can expect to pay the new rate before it returns to your prefiling status.
Bottom line
Bankruptcy can help lessen the weight of your debt if you don’t think you can pay it off. But you’ll want to factor in the possibility of higher car insurance rates if you live in a state that weighs your credit score when determining rates.
Get the lowest rate you’re eligible for by shopping for a policy among multiple providers.
Common questions about car insurance after bankruptcy
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