Will I Be Able To Keep My Car In Bankruptcy?
For most people, owning a car is a necessity of modern life; without a car it would be difficult to get to work and carry out necessary activities. A common question among people filing Chapter 7 or “liquidation” bankruptcy is whether they will be required to sell their car.
At its core, bankruptcy is a means of giving heavily indebted people a fresh start. Because depriving people of a car would severely hamper their chances of success after filing for bankruptcy, the law provides ways for most people to keep their cars.
However, there are conditions.
Exempting Your Car From Your Bankruptcy
Maryland bankruptcy laws do not provide a specific exemption for motor vehicles, but you can use a “wildcard” exemption to protect your vehicle. The wildcard exemption allows you to exempt cash or property up to $6,000 in value plus personal property up to $5,000 in value.
If you own your vehicle, you should be able to keep it, as long as the exemption covers the majority of the equity you have in your car.
When You Still Owe Money On Your Car
The vast majority of people who take out loans to buy cars use the vehicle itself as collateral for the loan. Assuming this is the case and you still owe money on your car at the time you file for bankruptcy, there are a few ways the situation could play out.
If you are behind on payments at the time you file, you may lose your car. A Chapter 7 bankruptcy does not include methods of getting caught up on overdue payments. It is best to try to work with your lender to restructure your loan before filing. If your lender agrees to a new loan contract, you would continue making payments after bankruptcy.
If the value of the car is less than the loan amount still owed when you file a Chapter 7 bankruptcy, the car is considered “under water” and of no value to your creditors, so the bankruptcy court will not confiscate it. However, if you wish to keep the car, you may be required to sign a Reaffirmation Agreement, and to continue making your regular monthly car payments.
Surrendering Your Vehicle Versus Redeeming Your Car
If you cannot afford to pay what you owe on the car or continue making payments, you will have to either surrender the car to the lender or redeem the car. Turning the vehicle over to the lender will wipe out the debt. The lender will either ask the court to lift the automatic stay on collections or wait until your bankruptcy filing is complete to collect the vehicle.
Redeeming a car means paying the lender the current market value of the car. People choose this option when they owe more than the current market value says the car is worth. The difference between market value and what is owed is discharged. Redemption requires you to make a single lump-sum payment equal to the value of the vehicle.
Contact Us Today For Help
If you are considering bankruptcy and are worried about keeping your vehicle, we can help you review your situation and advise you on your options. Call the Law Offices Of John C. Hanrahan, LLC at 301-228-0787 or fill out our online contact form to set up an initial consultation.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.