Car insurance after bankruptcy

How credit enters the picture

A credit-based insurance score is a separate model built from credit report data and designed to correlate with insurance claims rather than loan repayment. Insurers weight it very differently, and some barely use it.

Several states prohibit or heavily restrict its use in auto rating — California, Hawaii and Massachusetts among them — and others limit it. Rules change, so check with your own state insurance department.

The exception worth asking for

Many states require insurers to consider an extraordinary life circumstances exception on request, for events such as serious illness, divorce, job loss, or in some states other qualifying circumstances.

It has to be requested, usually in writing and with documentation, and nobody will offer it to you. If your credit was damaged by a specific event rather than by pattern, ask.

Shop much more widely than usual

Because insurers weight this factor so differently, the spread between the best and worst quote for the same person is wider after a bankruptcy than at almost any other time.

This is a situation where getting quotes from many insurers, rather than two, changes the outcome materially.

Keep coverage continuous

Continuous coverage history is its own rating factor, and a lapse compounds a credit problem. If money is tight, reduce coverage rather than dropping it.

A lapse also carries registration and licence consequences in many states, which is a much larger problem than a higher premium.

Practical steps

• Check your credit reports for errors — you're entitled to free copies and errors are common
• Ask each insurer whether and how they use credit information
• Ask about the extraordinary life circumstances exception explicitly
• Look at usage-based programmes, which weight how you actually drive
• Ask about paying annually, which often costs less in total than instalments
• Re-shop periodically as the bankruptcy ages