Auto insurance experts are cautioning American car owners against filing for bankruptcy. According to recent studies conducted by financial firms and media organizations, the number of individuals that have filed for bankruptcy has risen dramatically. In fact, during the period from October 2007 to October 2008, bankruptcy filings have risen by 34 percent. Some economists say that the worsening economic situation can mean more individual bankruptcies in the foreseeable future.
Americans who feel that they cannot pay off mounting debts often turn to Chapter 13 bankruptcy to break free of their creditors and bad loans. Many experts believe that the economic recession is forcing more and more people to resort to whatever means just to avoid losing their homes, investments, and financial freedom. Unfortunately, most car insurance firms do not look too kindly on policyholders who have filed for bankruptcies before.
Since many states allow insurance providers to base premiums on credit scores and histories, car owners with previous bankruptcies can expect to get higher insurance rates. Industry sources point out that insurers base rates on risks. A motorist with a spotty credit history can present more risk than average policyholders, hence the higher premiums.
Consumer advocates say that the practice is unfair and unjust to car owners. Rights groups argue that the basis of rates should be the motorists’ driving records and histories, and not their financial standing. In some states, the policy of basing premiums on credit ratings is prohibited. However, most state governments allow insurers to assess insurance rates based on the financial performance of their policyholders.
Experts say that motorists who have no choice but to declare bankruptcy can still manage to get better rates by preempting the recording of the bankruptcy on their credit records. Usually, policyholders that pay their dues to their insurers may still get the same premiums when they renew their policies. The secret, analysts say, is to make payments on time and ensure that their providers have not yet checked their credit reports before renewing their policies.
Insurance industry sources explain that most providers check credit reports and ratings once a year. This leaves car owners substantial time and opportunity to avail of better premiums without suffering the consequences a consumer with bankruptcy records. Over time, however, bankruptcy can change the way insurers interact or look at car owners. At this point, experts say, motorists can look for other ways to slash their premiums.