Debtors may sometimes keep their cars in bankruptcy

People in Maryland who are struggling to pay down their debts may have considered filing for bankruptcy protection. Doing so will trigger an automatic stay of collection actions and may result in the reduction or elimination of debts. It might also mean giving up assets, though, and many people fear losing assets that they need to earn money, like a car. In many cases, it is possible for someone to file for bankruptcy and still keep his or her car.

Whether a debtor can keep his or her vehicle depends on the bankruptcy type, how current the individual is with his or her car payments and the vehicle exemption. It is often easier to keep a motor vehicle in a Chapter 13 bankruptcy than in a Chapter 7. Chapter 13 is sometimes referred to as reorganization bankruptcy wherein the debtor submits a plan to repay debts over a period of three years or five years. In a Chapter 7, sometimes referred to as a liquidation bankruptcy, the debtor must give up all nonexempt assets.

A motor vehicle may be exempt in many cases depending on how much equity the person has in it. If the amount of equity in the car is less than the allowed exemption for Maryland, the person will likely be able to keep it. Otherwise, the trustee will sell the car and use the funds to pay down debts. If the person is behind on payments, the amount of equity may not matter, and he or she might lose the car.

Individuals who have questions about the bankruptcy process might want to speak with a lawyer. An attorney who has experience in bankruptcy law might be able to help by examining a person’s debts and assets and suggesting options to make debts more manageable. A lawyer might draft and file a bankruptcy petition for a client or ensure that he or she completes requirements like pre-bankruptcy counseling. Filing for bankruptcy might stop the process of car repossession if it has already begun.