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Secured Debts

Some creditors have a right to repossess assets unless they are paid. Auto loans are usually secured by the pledge of your car title as collateral to secure the car loan. Mortgages against real estate are secured by a lien against real estate. If you are behind on your vehicle or home payments; however, and desire to retain the car or house, a Chapter 13 Bankruptcy may be a viable option for you.

If you have secured debts (other than those related to a home or vehicle), you may lose the property if you gave it as collateral when you bought the property, unless you pay either the amount of the debt or the value of the property, whichever is less. If you gave household goods that you already owned as collateral, we might be able to do an avoidance of lien. (Motor Vehicles are not household goods.) Liens survive the bankruptcy case. Should a lien exist on your property after the Bankruptcy is discharged, the lien will survive the discharge and the creditor will be able to demand payment or be able to repossess the collateral.

Many stores (Sears, Montgomery Wards, Circuit City, Levits, Zales, Best Buys etc.) retain a purchase money security interest (PMSI) in the goods purchased with a store credit card. In essence the debtor will, once again, be required to pay the present fair market value of the goods or the amount of the debt (whichever is less) in order to retain the items purchased. If not addressed within a Chapter 13 Bankruptcy proceeding, Secured Creditors can repossess cars, household goods, and foreclose on home mortgages if regular payments are not made on these loans. There are generally three choices to make as to Secured Debts in a Chapter 7 Bankruptcy case:

  • 1.Surrender the collateral (the car or house) to the creditor; or
  • 2.Reaffirm the debt with the creditor to keep the collateral (explained below); or
  • 3.Redeem the collateral from the creditor (explained below).

Reaffirmation Agreement In a Chapter 7 Bankruptcy Proceeding, if you have a secured debt, you are required to state, in writing, as a part of your Bankruptcy Petition whether you intend to surrender, reaffirm or redeem the collateral pledged to secure the loan. This "Statement of Intent" is sent to each Creditor and your stated intent should be performed within roughly 45 days of filing for Bankruptcy.

If you intend to reaffirm on the debt, that means you intend to keep the collateral and keep making regular monthly payments of principal and interest until the debt is paid in full. Reaffirmation agreements are voluntary and they require the Creditor's agreement to allow you to reaffirm the debt and keep the collateral. This does not always happen. Some Creditors refuse to agree to reaffirmation. In that case, you might be forced to surrender the collateral to the Creditor.

Redemption The United States Bankruptcy laws allow a Bankruptcy Filer to keep collateralized secured property by paying the Creditor the lesser of the fair market value of the property pledged to secure a debt or the amount of the debt.

The issues related to Secured Debts, Reaffirmation, and Redemption could become quite complex. Call, or contact, The Drazin Law Center's knowledgeable attorneys today for your Free Initial Consultation!