Filing bankruptcy affects your financial future in various ways. If you are fortunate enough to maintain your home during the proceedings, you may encounter trouble with renewing your homeowners insurance company. Homeowners with a deed of trust should maintain standard coverage on the property in any way times to remain in compliance with the contract. Homeowners insurance protects the lender and the homeowner in the event the property is damaged.
Homeowners with a deed of trust can use an escrow account to cover homeowners insurance. California Insurance Code 660 through 669.5 restricts the grounds an insurance company can cancel your policy after the first 60 days lapse: nonpayment, fraud, misrepresentation, or physical changes to your property. Filing bankruptcy does not qualify as an explanation for early cancellation. You’re safe for your year till your policy comes up for renewal. Now, the insurance company may decide not to renew your coverage.
Bankruptcy considerably lowers your credit score and seems as a public record on your credit report for 10 years, hindering your ability to get credit, insurance and personal loans. Insurance companies often pull credit reports as part of this approval procedure. You may experience a wrongful denial with a bankruptcy on your accounts. You could also experience higher insurance premiums due to the lower credit rating. The insurance company must notify you when you are paying higher premiums due to a low credit score at an Adverse Action note.
The insurance industry provides high-risk insurance plans to people who are not eligible for regular insurance. Fair Access to Insurance Requirements (FAIR) plans provide basic coverage for homeowners. Ask your insurance agent if you are eligible for a FAIR plan. FAIR plans are often more expensive to buy and provide less coverage to homeowners, but they fulfill the requirements for the deed of trust.
When your insurance lapses, the insurance company notifies your mortgage lender. Your deed of trust requires homeowners insurance and contains a clause about lender-placed insurance. In case your insurance lapses, your lender can purchase insurance for your benefit. Force-placed insurance is expensive and provides favorable terms of the creditor but not the homeowner. You pay for lender-placed insurance in your bank account, which then raises your mortgage payment. If you cannot discover any other sort of insurance, then lender-placed insurance provides basic coverage for fighting homeowners.