Maryland Bankruptcy Law: How to Deal with Car Loans
Maryland bankruptcy law can provide relief to individuals struggling with financial obligations, including car loans. If you find yourself overwhelmed with debt and considering bankruptcy, understanding how it affects your car loans is essential.
In Maryland, you have the option to file for Chapter 7 or Chapter 13 bankruptcy. Each chapter handles vehicle debts differently and understanding these differences can help you make an informed decision.
Chapter 7 Bankruptcy and Car Loans
Chapter 7 bankruptcy is often referred to as liquidation bankruptcy. In this process, most of your unsecured debts are discharged, giving you a fresh start. However, secured debts, such as auto loans, may be treated differently. Here’s how it works:
- Reaffirmation Agreement: If you want to keep your car, you'll need to sign a reaffirmation agreement with the lender. This agreement states that you will continue to pay off the car loan post-bankruptcy, allowing you to retain the vehicle.
- Redemption: You may also choose to redeem your vehicle by paying the lender the current market value of the car in a lump sum, which can be advantageous if your vehicle is worth less than what you owe.
- Surrendering the Vehicle: If keeping the car is not financially feasible, you can choose to surrender it to the lender, which will eliminate your auto loan debt.
Chapter 13 Bankruptcy and Car Loans
Chapter 13 bankruptcy is a reorganization bankruptcy that allows you to create a repayment plan to pay off your debts over a three to five-year period. Here's how car loans are treated under this chapter:
- Keep Your Vehicle: Chapter 13 allows you to keep your car while you catch up on missed payments. You can include your arrears in your repayment plan.
- Cramdown: If the car was purchased more than 910 days before filing for bankruptcy, you might qualify for a "cramdown," which allows you to reduce the loan balance to the current market value of the vehicle.
- Lower Interest Rates: Chapter 13 might also enable you to negotiate lower interest rates on your car loan.
Understanding the Means Test
Before filing for bankruptcy in Maryland, you must pass the Means Test. This test helps determine your eligibility for Chapter 7. If your income exceeds the state’s median income for your household size, you may need to file for Chapter 13 instead.
Filing for Bankruptcy in Maryland
To file for bankruptcy, consult a qualified Maryland bankruptcy attorney who can guide you through the process. They can help you understand your options regarding car loans and ensure that you navigate bankruptcy effectively.
Impact on Credit Score
Filing for bankruptcy will impact your credit score, but it can also lead to an opportunity for financial recovery. While it may take time to rebuild your credit, making consistent payments on your car loan can help improve your credit profile.
Final Thoughts
Addressing car loans during bankruptcy in Maryland requires careful consideration and an understanding of your rights and options. Whether you opt for Chapter 7 or Chapter 13, knowing how each option affects your auto loan will empower you to make the best financial decisions moving forward.