Can You Keep Your Car When You File For Bankruptcy?

What Happens to Your Car in Bankruptcy?

If you live in Southern Maryland it is hard to make do without a car. Because of this one of the things we do when you come in for a free initial bankruptcy consult in our Waldorf or Lexington Park offices is figure out what you have to do to keep your car.

If you want to keep something you own in bankruptcy, you have to protect it with what we call an exemption. If you have lived in Maryland for more than two years you would use Maryland’s bankruptcy exemptions to protect your assets.  To figure out what you have to do to keep your car, we have to calculate how much equity you have in it.

To do this we will look at what your car is worth and subtract out what you owe on it. To value your vehicle, we will start with a website like Kelly Blue Book or Edmunds. The value we use is the private party value. If your car is worth less than what you owe on it you can keep it as long as you make the car payments. If it is really far upside down, we may have to talk about if it really makes sense to keep it. But that it is a separate discussion.

If it is worth more than what you owe, or you don’t owe anything on your car, this equity needs to be protected with your bankruptcy exemptions (for more exemptions see our post What are Maryland’s Bankruptcy Exemptions).

Keeping Your Car In Chapter 7 Bankruptcy

Generally speaking you have about $5,000 in exemptions in a Chapter 7 bankruptcy that you can use to protect your equity in your vehicles. This amount may go up or down depending on the other assets you have.

This may go farther than you think. You may be surprised how little your car is worth when you look it up.

Also, if the vehicle is jointly titled, you only have to protect your share. If you are filing a joint case with your spouse, they will have their own set of exemptions to protect the other half.

And you may be able to protect even more equity if you don’t have many other assets to protect. In some cases, a reaffirmation agreement or a redemption option might be viable strategies to consider.

How many cars can you keep in Chapter 7 Bankruptcy in Maryland?

In Maryland, individuals filing for Chapter 7 bankruptcy can typically keep one or more vehicles, provided that they meet certain conditions. Generally, you can keep your car if you continue making payments on any outstanding auto loans and the car’s equity falls under Maryland’s exemption limits. Maryland allows filers to exempt up to a specific amount of equity in their vehicles under state law. If the value of your car exceeds this limit, you may be required to pay the difference or lose the vehicle. However, it is possible to keep multiple cars, particularly if their combined value remains within the allowable exemption or they serve essential purposes, such as for work or family needs.

Keeping Your Car In Chapter 13 Bankruptcy

But sometimes you will have too much equity to protect in a Chapter 7. In this situation you can still protect your car by fling a Chapter 13 payment plan bankruptcy. A Chapter 13 payment plan can also be filed when you are behind on your car payment to stop a repossession and get you caught up on your payments.

In a Chapter 13 bankruptcy you can keep your car even if you have too much equity to protect in a Chapter 7. To do this you will need to make sure that the Chapter 13 payment plan pays back as much money to the unsecured creditors as they would get in a Chapter 7.

In a Chapter 13 case this is called the Chapter 7 liquidation test. This can also be used to protect nonexempt equity in your home and other assets. (for information on keeping your house see our post Can You Keep Your House When You File For Bankruptcy?)

This can all get pretty complicated. But that is why we offer a free bankruptcy consultation. During this consult we can figure out what you have to do to keep your car when you file for bankruptcy.

How many cars can you keep in Chapter 13 in Maryland?

In Maryland, under Chapter 13 bankruptcy, you may keep multiple cars, including more than two, provided you meet specific conditions. You can protect the equity in each car using bankruptcy exemptions. If the equity in your vehicles exceeds the exemption limits, you must pay the value of the non-exempt equity through your Chapter 13 repayment plan. This allows you to retain ownership while fulfilling your other obligations under the bankruptcy.

Statute Of Limitations On Car Repossession In Maryland

In Maryland, the statute of limitations on car loan-related debt is 4 years, meaning creditors have four years from the date of default to file a lawsuit to recover any outstanding balance. Car loans are typically secured by a lien on the vehicle, which gives the lender the legal right to repossess the car if you fall behind on payments.

However, the repossession itself can happen anytime after default, but the creditor must file a lawsuit for the deficiency balance (the amount owed after the sale of the repossessed vehicle) within the 4-year period. After this timeframe, they are generally barred from suing you to collect any remaining debt.

If your car is repossessed, Maryland law also requires creditors to follow specific procedures, including providing notice of the sale of the car and ensuring that the sale is conducted in a commercially reasonable manner.

Conclusion & Next Steps

If you, or someone you know, has this problem you may do them a big favor telling them now is the time to see a bankruptcy lawyer for a consultation. While they may not be able to discharge their tax debt in bankruptcy, they may be able to deal with the debts that are causing their tax problems.

Remember, consultations are free and confidential, so there is nothing to lose.

Want to know more? Discover what you need to know about bankruptcy in Maryland. Click here to see our Free Legal Consumer Guide to Maryland bankruptcy cases and get answers to your questions today. Know your options. Be informed. Protect yourself.

Need a bankruptcy lawyer? Please contact us for a consultation today if you need a Maryland bankruptcy lawyer for your bankruptcy case.

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