Legal Question in Bankruptcy in California
Is an auto finance lien voided in bankruptcy?
Our car was totaled in an accident,
where we weren't at fault. The car
was included in our bankruptcy. The
insurance company states that
chapter 7 only discharges the
debtor's obligation to pay for a
debt, but does not extinguish liens.
Our insurance company says they
are obligated to satisfy the lien. We
thought that chapter 7 bankruptcy
meant the debt no longer existed
and the insurance settlement
should be paid entirely to us. Is this
correct? Thank you for your
response.
1 Answer from Attorneys
Re: Is an auto finance lien voided in bankruptcy?
If only it worked that way . . .
The insurance company is correct. The debt, while no longer enforceable (presuming you obtained a discharge in bankruptcy), has nothing to do with the lien. The lender (the company that financed the car for you) has a security interest in the car. This is why your pink slip shows the lender as lienholder. The lender is also loss payee on the insurance policy. The lender is the beneficiary under the policy, as long as it holds the security interest.
You are not entitled to the money. The money goes to the lender.
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