What Happens to My Car After Filing for Bankruptcy?
August 9, 2025
When you are struggling with debt, federal law gives you the option to file for Chapter 7 bankruptcy. This type of bankruptcy is known as liquidation, where certain assets may be sold by a court-appointed trustee to repay creditors. One of the most common concerns individuals have when filing for Chapter 7 is whether they can keep their car. While it’s possible to retain your vehicle, there are specific rules and exceptions that determine the outcome.
Can You Keep Your Car in Chapter 7 Bankruptcy?
In Chapter 7 bankruptcy, whether you keep your car depends on its value, how much equity you have in it, and your ability to protect that equity through available exemptions. The trustee will assess your property, including your vehicle, to determine if it can be sold to repay creditors.
Maryland does not offer a specific “motor vehicle” exemption. However, debtors may use the state’s personal property exemptions to protect equity in a vehicle. Maryland allows an exemption of up to $6,000 in personal property, which can be applied to a car. Additionally, there is a wildcard exemption of up to $5,000 that can also be used for any property, including a vehicle.
If the equity in your car falls within these exemption limits, you may be able to keep your vehicle.
How Vehicle Equity Affects Your Case
Equity is the market value of your car minus any remaining loan balance. For example, if your car is worth $10,000 and you owe $7,000, you have $3,000 in equity. If you apply your personal property exemption to protect that $3,000, the bankruptcy trustee cannot sell your car.
However, if the equity in your vehicle exceeds the available exemptions, the trustee could sell the car, pay off any auto loan, give you the exempted portion, and distribute the remaining proceeds to creditors.
What If You’re Behind on Car Payments?
Even if the equity is protected, you could still lose your vehicle if you are behind on payments. Bankruptcy provides an automatic stay, which temporarily prevents your lender from repossessing your car. But after the bankruptcy is complete, if you haven’t made arrangements to catch up or continue payments, the lender can repossess the vehicle.
There are a few options available:
- Reaffirm the loan, which means you agree to continue making payments and keep the car.
- Redeem the vehicle, which allows you to pay the current value of the car in a lump sum.
- Surrender the vehicle, which releases you from further financial obligation, though you’ll lose the car.
It’s important to note that car loans are secured debts, and while bankruptcy can wipe out your personal liability, it does not eliminate the lender’s lien on the vehicle.
Why You Should Speak to a Bankruptcy Lawyer
Deciding whether to keep your car in Chapter 7 bankruptcy can be a complex decision based on your finances, the vehicle’s value, and the exemptions available. A bankruptcy attorney can evaluate your situation, explain your rights, and help you make an informed decision. If necessary, your lawyer can help you reaffirm a loan, negotiate with creditors, or surrender the vehicle strategically.
Contact the Owings Mills Bankruptcy Lawyers at LeViness, Tolzman & Hamilton
If you are considering bankruptcy and are concerned about keeping your car, speak to the experienced Owings Mills bankruptcy lawyers at LeViness, Tolzman & Hamilton. Call 800-547-4LAW (4529) or fill out our online contact form to schedule a free consultation.
We have offices in Baltimore and Owings Mills, allowing us to represent clients in Maryland, including those in Anne Arundel County, Baltimore County, Carroll County, Harford County, Howard County, Montgomery County, Maryland’s Western Counties, Prince George’s County, Queen Anne’s County, Southern Maryland, and the Eastern Shore, as well as the communities of Catonsville, Essex, Halethorpe, Middle River, Rosedale, Gwynn Oak, Brooklandville, Dundalk, Pikesville, Nottingham, Windsor Mill, Lutherville, Timonium, Sparrows Point, Ridgewood, and Elkridge.