When you file for Chapter 7 bankruptcy, you must tell the court what you intend to do with your debts that are secured by personal property.  For many Chapter 7 bankruptcy filers, this decision comes up in the context of their car loans. Ordinarily, the debtor has three options.

The first option with Chapter 7 in Maryland is, the debtor can surrender his or her vehicle and discharge the car loan debt. This option allows the secured creditor to repossess the car. By choosing to surrender the property, the debtor’s personal liability is discharged. Therefore, if a lender were to repossess the car and sell it for an amount that is less than what you had owed on the vehicle, you would not be responsible for the deficiency. If a debtor is behind on payments and does not foresee being able to afford the future payments, the debtor can walk away from the vehicle and discharge the debt by surrendering.

The second option with Chapter 7 in Maryland is, the debtor can redeem his or her vehicle and own the car clear and outright. This option allows the debtor to keep the car. To redeem the vehicle, at the time of the filing of the bankruptcy, the debtor must pay the lender either how much they owe on the vehicle or the fair market value of the vehicle: whichever is lower. 

The third option with Chapter 7 in Maryland is, the debtor can also keep their vehicle by reaffirming their debt on the vehicle. If the debtor reaffirms and continues to make the agreed upon loan payments, then they can keep the car. However, by reaffirming the debt, the debtor does not get a discharge on his or her car loan debt. If the debtor falls behind on their payments, the lender has the right to repossess the vehicle, sell it, and then sue the debtor for any deficiency. 

When a debtor is current on car loan payments when filing for Chapter 7 bankruptcy, he or she may be able discharge his or her personal liability on the car loan AND keep the vehicle as long as the debtor retains current on the payments. Whether or not this option is possible for a debtor is complicated and will not be detailed in this article.

If you have any questions about filing for bankruptcy, call or email Ruben Law anytime for a free office or phone consultation. Our telephone number is (410) 766-4044 and email is david@rubenlaw.com.  We are available 24 hours a day and ALWAYS respond very quickly. Ruben Law has been handling bankruptcy cases in Maryland for over 25 years. We offer free consultations and look forward to hearing from you.