As you prepare to file bankruptcy, you may worry about losing your vehicle. You likely need it to travel to and from work and having a bankruptcy trustee take it to repay your creditors could complicate that matter. While some people do lose their vehicles during bankruptcy, many people keep theirs. You may be able to, too, depending on your circumstances.
Chapter 7 bankruptcy
If you file Chapter 7 bankruptcy and are behind on your auto loan, you will likely lose your vehicle unless you can repay its balance. Yet, you may have paid it off or it may be of insignificant value. Maryland’s bankruptcy laws do not allow exemptions for cars. But you can apply its wildcard provision to your vehicle. This rule allows you to protect up to $6,000 in property of your choosing. So long as your vehicle’s value is that amount or less, you can invoke this exemption to keep it. Yet, your vehicle’s value may be greater than $6,000, but you’ve remained current on your payments. You may be able to keep it in this case as well, depending on how much you still owe on your loan.
Chapter 13 bankruptcy
If you file Chapter 13 bankruptcy, you will most likely keep your vehicle, whether you’re current or behind on payments. Chapter 13 allows you to create a repayment plan to eliminate any debt you have, including auto loans. Instead of a bankruptcy trustee selling off your vehicle, you will pay off your car loan’s balance. And if you have owned your vehicle longer than two-and-a-half years, you may qualify for a car loan cramdown as well. This arrangement allows you to pay off your vehicle’s fair market value, rather than your loan’s remaining principal balance. A cramdown could lower your interest rate, too.
Losing your vehicle in bankruptcy is a possibility. Yet, it is far from a certainty, especially if you understand the provisions required for keeping it. An attorney with bankruptcy law experience can help you do so.