How does bankruptcy affect car insurance?

If you file for bankruptcy, your car insurance rates will go up. Car insurance companies often check your credit report when determining your rates.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP® Joel Ohman

UPDATED: Sep 30, 2021

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Here's what you need to know...

  • If you file for bankruptcy, your car insurance rates are bound to go up
  • Car insurance companies often check your credit report when issuing your car insurance premium
  • It may benefit you to search for an auto insurance carrier that will insure you at a lower rate

If you are thinking about filing for bankruptcy or have already started the process, you need to know how your car insurance rates will be impacted.

You need to know the different types of bankruptcy and how each chapter compares to the other chapters. The bankruptcy process shouldn’t be such a mystery.

A high number of auto insurance providers consider your credit history when calculating quotes.

Your rates might stay exactly the same immediately after your bankruptcy has been filed, but you should be prepared to see a big rate hike over time.

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Credit scores are frequently hurt by actions such as making late payments to your creditors or having accounts charged for missed payments.

Filing for bankruptcy is one of the most serious actions that you can take because it virtually erases your entire credit history.

If you have had to walk the long, arduous road to bankruptcy, chances are that your credit rating was not that good in the first place.

Although you will need to get quotes from several different companies in order to secure better premiums, the good news is that you will have a higher credit rating within a few years.

Do insurance companies pull your credit?

Many different auto insurance companies look up your credit reports to see how financially responsible you are. Insurance companies want to see what type of risk factors the average person applying for their coverage can bring to the table, but they also want to see if those prospects have a habit of paying their bills on time.

Remember that car insurance providers lose money when motorists don’t pay their premiums and let their policies lapse. They want customers who won’t waste what they consider valuable time by forcing them to come looking for the payments.

You don’t have to give a car insurance company your social security number in order for a credit check to be performed.

If you visit the website of the Federal Trade Commission, you will find out what you can do to increase your credit score after going bankrupt.

Having other identifying information, such as your full name and your address, is all that is needed.

You can call up different car insurance providers and see if they screen credit files before giving rates, but there is a good chance that some insurance agents might not know for certain.

Depending on the company through which you are getting your auto policy, there may be different credit-related factors that are being considered.

Some companies might perform what is called a soft pull — which will give them access to limited information — while others will perform a hard pull so that they can see your full credit history.

It will take a little bit of time before your bankruptcy is listed on your credit reports, so try getting quotes now to see if you are able to get lower premiums.

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What happens when you try to purchase car insurance after bankruptcy?

Just as there are car insurance providers that market to motorists with poor driving records, there are also insurance companies that capitalize on the fact that they don’t review credit scores.

If you have been unable to get a reasonable car insurance quote since filing for bankruptcy, it might be in your best interest to start looking for companies that don’t need to access your credit score. Since your score after bankruptcy will certainly be lower than what it was before, you’ll need a company who won’t dig too deeply into your history.

The good news here is that you can use the internet to seek out auto insurers that don’t pull your credit and then apply for quotes with them.

You also have the option of consulting with a locally-based broker for auto insurance.

You may need to pay a fee, however. Most insurance brokers often have partnerships with a wide range of insurance providers, which will help to increase your chances of reducing your car insurance rates.

How much does bad credit affect car insurance?

From the time that you file for bankruptcy, it will be approximately two years before you will be able to restore your credit score.

You should take into account the fact that bankruptcies remain on credit files for up to seven years and 180 days, even if you clear your debt and come into better financial footing.

If you have your policy through a company that does a thorough credit screening, your rates might stay inflated for that same period of time.

Even if you have a car insurance policy now and your rates have not increased since filing for bankruptcy, your rates could change when it is time to renew your policy.

Since creditors often do periodic credit pulls, your car insurance company probably doesn’t even know that you have gone bankrupt yet. You should brace yourself for the worst and start to review all of your car insurance options now. Your finances after bankruptcy will be tied up in knots as you attempt to balance everything, but you can pull yourself up with those knots and get things on an even field again.

You can help to keep your car insurance premiums lower by bundling all of your insurance products together or by switching to a different company that doesn’t base rates on your credit history.

Enter your ZIP code below for car insurance quotes from multiple providers.

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