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David A. Casey, Bankruptcy Attorney 365 Broadway, Suite 203 El Cajon, California (619) 447-6780 Call For Your Free Bankruptcy Consultation. Call Attorney David A. Casey Chapter 7 Bankruptcy Attorney Explains Secured Debts & Bankruptcy Dealing with Secured Debts in Chapter 7 1. A Secured debt is a debt that is secured by some form of collateral. Example: A house or car. 2. A secured creditor is the owner of the secured claim. 3. A secured interest is a claim to property used as collateral. Example: Lender on a car note. |
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Dealing with Secured Debt in Chapter 7 Bankruptcy. When a debt is secured, the creditor has a interest (or rights) in the security (the collateral) in addition to the rights against the debtor which is by the note. The debtor's personal liability can be discharged in Chapter 7 bankruptcy, while a lien in the collateral passes through bankruptcy unaffected. What this means is that the debt is discharged but the lender still has a right to take back the property unless the lien is avoided or stripped down. When the lien cannot be avoided, the debtor gets choices on how to provide for the creditor's rights in the collateral. For example: A debt that is secured like a mortgage, passes through the bankruptcy unaffected by the discharge. The good news, most creditors secured in real property are willing to continue receiving payments on the debt, so long as you are current. Normally in a Chapter 7 if you are current, the lender has no problem with your continuing to make payments to them. If you are in arrears then you can use Chapter 13 to become current to cure defaults in the secured debts. Here are the choices you have when it comes to secured debts in Chapter 7:Redeem, reaffirm, or surrender.
B Reaffirmation: An agreement between you and the creditor that waives the discharge as to the reaffirmed debt unless there is a new agreement that you will pay the debt according to the terms of the original agreement. The reaffirmed debt is legally enforceable against you after bankruptcy if you breach the agreement. (Example: You stop paying or you default on the contract in some manner.) The creditor retains the security interest in the asset until the debt is paid and your debt is NOT discharged in bankruptcy. This means later on you can be sued if you breach the reaffirmation agreement. C. Surrender: This is common in a bankruptcy. The collateral on secured debt is surrendered to the lien holder. At that that time, the debt is not considered unsecured and your debt is then dischargeable. The creditor can sell the asset to recover part of the claim. If you owe more than it is worth that is no problem, since the unpaid balance is discharged in the Chapter 7 bankruptcy. Statement of Intention Among the many documents filed in a Chapter 7 case is a statement of intention. This statement advises all parties what the debtor proposes to do with respect to those assets subject to liens such as cars, homes and other debts that the debtor purchased. Most of the time, the debtor will not change their intention after filing Chapter 7. However, before discharge the debtor can change his or her intention by amending it BUT that does NOT mean the court will grant it or the trustee may even contest it. I strongly suggest to have a clear idea of you intentions before filing for bankruptcy. It also saves attorney fees. There's more! The unwritten choiceThis option is what I call "taking a chance". This option is not included in the bankruptcy code. This has nothing to do with respect to the lien. Prior to the amendments to the Bankruptcy Code, this was a very common action because if you continue to make the payments on the debt secured by a car, for example, the creditor could not repossess the car. However, in California, that may not be the case now. In order to keep your car and don’t want to risk a repossession, you need to sign a reaffirmation agreement. State law probably now controls as to whether a contract that is current on payments is breached by merely the bankruptcy filing. So far the law is still "up in the air". Another variable is that many lenders are choosing not to take any action to compel reaffirmation and are content to collect the payments without a reaffirmed loan contract. If the asset has a low value relative to the cost of repossessing it (furniture’s, used computers, major appliances, low value vehicles), many debtors are declined since a reaffirmation agreement to redeem, or surrender the property was chosen. They take the "wait to see" approach to see if the creditor will take action to recover the collateral after the bankruptcy. In my experience, most creditors may threaten to take the item(s) back, however, will not pursue taking the collateral after the bankruptcy do to the cost and the little value in it. However, they still could. With the housing market, lenders are not likely to force the issue. So far many homes are worth less than they are worth and the lender would rather get payments if you continue to be current. The laws are always changing so make sure you check with your attorney. If I am representing you in San Diego County, I will advise you of your options, however, in the end, it is you who decides which way you will proceed. Our pre-bankruptcy review will give you the information you need before filing for bankruptcy. No surprises after you file. Chapter 7 and Chapter 13 Bankruptcy AttorneyFree Initial Bankruptcy Consultation! 619 447-6780 Call David A. Casey, Family Law Attorney for 20 yearsChapter 13 | Chapter 7Bankruptcy can get you that fresh start you needand relieve the stress of your financial problems!Call today for a Free Phone Consultation! 619 447-6780Chapter 7 Bankruptcy Attorney Explains Secured Debts & Bankruptcy Let's face it, the reason you are not paying your creditors is because you just don't have the money. Most people just do not intentionally charge up debt with the intent of going bankrupt. Most Americans are hard working who always try to pay the debt they owe but some unfortunate event disrupts their finances such as the loss of job by one or both members of the family, costly medical bills, illness, divorce, and devaluations of real property. During these unprecedented times what you once were able to use and count on to support you and your family no longer exists. In other words, there is no money to rely upon. You have probably done everything possible. It is now time to stop the creditor's harassment and to stop them from calling at work or even your family members. Our pre-bankruptcy process will tell you what assets you will be able to keep. Most are able to keep just about everything. A high percentage will be able to keep everything. Our pre-bankruptcy evaluation will take the fear out of bankruptcy and tell you what will happen under both chapter 7 and chapter 13.
David Casey, Bankruptcy Attorney Office Location: 365 Broadway, Suite 203 El Cajon, California (619) 447-6780 Call Attorney David A. Casey, Attorney for 20 yrs.
Learn What Not To Do in Pre-Bankruptcy
A secured debt is a debt secured by some form of collateral. They also are called liens. Find out how Chapter 7 bankruptcy affects these secured debts. See What Assets Are Exempt In Bankruptcy
During our pre-bankruptcy review you will be advised of the probable outcome before filing bankruptcy. El Cajon 92019, El Cajon 92020, El Cajon 92021, El Cajon 92022, El Cajon 92022, El Cajon 92090, |
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