For many people in Maine, a vehicle is not a luxury; it is a necessity for getting to work, school, and appointments. The potential loss of a car can cause some people to hesitate to file for bankruptcy.
Filing for Chapter 7 bankruptcy, however, does not automatically mean you will lose your vehicle. Maine law provides ways for filers to protect certain assets, including a vehicle.
First, you must calculate your vehicle’s equity
Whether you can keep your car in Chapter 7 often depends on its equity. Equity is the value of your car minus any amount you still owe on a loan. For example, if your car is worth $8,000 and you have a $3,000 loan balance, you have $5,000 in equity. If you own the car outright, its entire fair market value constitutes equity. This figure critically determines how the court will treat your vehicle.
How Maine bankruptcy exemptions protect your car
Maine’s bankruptcy exemptions are laws that allow you to shield a certain amount of property value from creditors, making the concept of equity important. These exemptions include:
- Specific motor vehicle exemption: Protects equity up to $11,800.00 in one vehicle.
- “Wildcard” exemption: You can apply this exemption to any property for up to $600.00. Adding value to the vehicle exemption.
If your car’s equity is less than these available exemption amounts, you can typically keep it without issue.
What are your options for a car with a loan?
Having a car loan adds another layer to the process when filing bankruptcy in Maine. If you are current on your payments and want to keep the car, you generally have a few choices.
You and your lender may agree to one of the following options:
- Reaffirm the debt: You can sign a new agreement with your lender that continues your obligation to make payments after the bankruptcy case closes. The court does not discharge the loan, and you keep the car as long as you pay on time.
- Redeem the vehicle: This option allows you to buy the car from the lender for its current fair market value in a single lump-sum payment.
- Surrender the vehicle: If the car is worth less than the loan or you cannot afford the payments, you can give the car back to the lender, and the court will discharge the remaining loan balance.
Choosing the right path depends on your financial circumstances and the terms of your loan.
Make an informed decision for your financial future
Reliable transportation is vital for maintaining employment and rebuilding your financial stability after a bankruptcy discharge. Many residents who file for Chapter 7 bankruptcy find that they can keep their vehicles by using Maine’s exemptions or working with their lenders.
Understanding how bankruptcy laws apply to your specific situation is necessary for seeking relief. An attorney can review your assets and debts to help you explore your options for protecting your property. Do not assume you will lose important assets without first learning about your rights.