What do you do when there are insurance proceeds payable on the loss of a car that secures a claim being paid through the plan?
Here’s the setup: The chapter 13 plan provides for the payment of a claim secured by the debtor’s car through the plan. Months after confirmation, the car is wrecked, and there are insurance proceeds from a full coverage policy. The secured creditor has a lien on the proceeds and is a named loss payee on the policy. The debtor has an exemption, and in addition has acquired equity in the car by paying down the debt through the plan.
Who gets the proceeds? How much does each party get? What law determines each party’s entitlement to the proceeds? Does it matter if the claim has been bifurcated (split into a secured claim and an unsecured claim based on the car’s value) or if it’s a “910-claim”? What if the debtor needs a replacement vehicle?
This is an incredibly common occurrence. I don’t have all of the answers to every situation, but I can tell you how I think the issues are best resolved. The short answer is that there needs to be an order from the Bankruptcy Court directing how the insurance proceeds are to be paid.
In the attached document, Insurance Proceeds on Car Securing a Claim Being Paid Through Plan – EDKY, I give Tips for Debtors’ Attorneys and Tips for Creditors’ Attorneys on how to deal with insurance proceeds. I hope it helps, but don’t forget my disclaimer at Read This First.