“I” is for Insurance–the Bankruptcy Alphabet

In the bankruptcy alphabet world, “I” is for insurance. Specifically, I’m talking about force-placed insurance. Never heard of it? Well, it’s a huge money-maker for mortgage servicing companies and it’s a nasty way for a homeowner to lose a lot of money. It’s also one way you can get your Chapter 13 bankruptcy case dismissed.

Here’s what happens: if you’re a homeowner with a mortgage and you fail to pay your homeowners insurance premiums, your insurance company will drop your coverage. Your mortgage company will soon find out and it will should send the homeowner a notice of lapsed coverage. The notice will advise the homeowner to go back and get coverage or else the mortgage company will purchase its own. This kind of coverage is called “force-placed insurance”.

Think this is no big deal? Well, you’re wrong. It’s a huge deal and it’s all bad for the homeowner. The average homeowner may pay an insurance premium of perhaps $70 per month. The average force-placed policy will cost between $150 and $250 per month. And the mortgage servicer might purchase it, but guess who gets stuck with the bill? Eventually, of course, it’s the homeowner.

The second problem is once the force-placed insurance coverage is implemented, the homeowner isn’t covered! How can that be? Well, force-placed insurance only covers the mortgage company’s loss, not the homeowner’s. So, if your house burns down, sorry, the mortgage company will get paid, but not you!

Finally, if you’re in a Chapter 13 bankruptcy and you lose your homeowners coverage, then your case may be dismissed. Why? Because the bankruptcy estate isn’t protected. A debtor has a duty to protect his or her property for himself or herself, but also for the benefit of the creditors. If your house burns down and you don’t have proper coverage, then no one gets paid other than the mortgage company.

Comment below if you’ve got questions!

Here are more suggestions to the Bankruptcy Alphabet:

Here’s In Forma Pauperis from Colorado Springs Bankruptcy Attorney Bob Doig

Here’s Income from New York Bankruptcy Attorney Jay S. Fleischman

An Income from Marin County Bankruptcy Attorney Catherine Eranthe

Here’s Income Tax Refund from Michigan Bankruptcy Attorney Christopher McAvoy

Here’s Independent Contractor from Big Island Bankruptcy Attorney Stuart Ing

Here’s Insiders from Los Angeles Bankruptcy Attorney Mark J. Markus

And Insiders from Metro Richmond Bankruptcy Attorney Mitchell Goldstein

Here’s Insolvency from Wisconsin Bankruptcy Attorney Bret Nason

Here’s Instant from San Francisco Bankruptcy Attorney Jeena Cho

Here’s Involuntary Bankruptcy from Cleveland Area Bankruptcy Attorney Bill Balena

Here’s Involuntary Petition from Omaha and Lincoln, Nebraska Bankruptcy Attorney Ryan Caldwell

Here’s IRA from Philadelphia Suburban Bankruptcy Attorney Christopher Carr

Here’s IRS from Northern California Bankruptcy Attorney Cathy Moran

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