Maryland residents who are experiencing financial stress often resist the idea of filing a bankruptcy petition because they fear that doing so will cost them possession of their automobile. The truth is almost the diametric opposite: filing a petition under either Chapter 7 or Chapter 13 of the Bankruptcy Code will protect a person’s automobile from attempts by creditors to repossess it. The mechanics of this protection are worth understanding.
The filing of a bankruptcy petition (we’ll skip over the several differences between Chapters 7 and 11) has one crucial and immediate effect: the issuance of what is called the automatic stay by the bankruptcy court. The automatic stay has the effect of a court order directed to all of the debtor’s creditors. The stay prevents any and all creditors from exercising whatever rights they may have to attempt to collect a delinquent debt.
The automatic stay prevents a creditor from exercising any right to repossess a person’s automobile merely because the loan used to purchase the car is in default. The issuance of the stay gives the debtor time to either bring the debt current or negotiate a new agreement with the creditor. In either case, the stay allows the debtor to retain possession of the car. If the delinquency on the loan is not resolved by the end of the bankruptcy process, the creditor may be able to reclaim the car, or the car may be claimed by the bankruptcy and sold to generate cash to pay other loans.
To qualify for the automatic stay, a person must of course be eligible to file a bankruptcy petition. That eligibility depends upon several factors that cannot be adequately covered in this blog post. Anyone who is curious about exactly how the stay operates and whether and wondering whether filing a bankruptcy petition may be a good idea may wish to consult an experienced bankruptcy attorney.