secured debt

What is a Secured Debt in Bankruptcy?

Bankruptcy, debt, Debt Relief, Uncategorized / By / May 12, 2020

When you take out a loan on your property as collateral to ensure your creditor will be paid back, you have a secured debt. When you file a Chapter 7 bankruptcy, your secured debt can be eliminated. However, just because a secured debt is eliminated does not mean you will be able to keep the property after your bankruptcy filing. Let’s take a further look at the process.

If you are planning to file bankruptcy, there are two terms you should become familiar with: “secured debt” and “unsecured debt.” Secured debt gives the creditor an interest in the piece of property. For example, a mortgage loan or car loan is an example of a secured debt. When you go to the dealership to take out a loan on a vehicle, they give you the vehicle as long as you pay off the loan. If, however, you fail to pay off the loan then the vehicle can get repossessed or the creditor can force a sale of the property. Unsecured debt is where the creditor has no interest in the property. An example of unsecured debt would be a credit card or personal loan.

A secured creditor is any creditor that has an interest in the property. If you default on the loan, the creditor can come and take the property away. Often times, the creditor will take the property back and resell it. The monies paid from the sale of the property will then be applied to the loan that is owed.

If your vehicle has been repossessed, you may be under a misguided impression that the creditor can’t sue you once they come and take the car away. This is false. If the value of the vehicle is not enough to pay back the rest of the loan, the secured creditor can sue you to recover the remaining balance.  This is known as the deficiency balance. Luckily, if your vehicle has been repossessed a Chapter 7 bankruptcy can help you eliminate any deficiency balance that you may owe the car company.

If you own a vehicle, home, or car and have taken out a loan against any such, then you have a secured debt. If you are unsure whether your loan is secured or unsecured, you can always speak with a bankruptcy lawyer to help you identify such.

If you have defaulted on a loan that is secured, then filing bankruptcy may help you. You can usually eliminate the debt that you had against the piece of property. If you decide to file bankruptcy and choose not to pay back the loan then your property will be taken away from you. This means you can’t keep a secured piece of property even if the debt will be eliminated in a bankruptcy filing.

In order to keep the property that you have used as collateral for a secured debt, you can opt to pay the creditor the amount you owe on the loan minus any exemptions. You have the option to either redeem the property. If you choose to Redeem the property this means that you will pay the value of the property. You also have the option to reaffirm the debt. Reaffirming the debt means that you will continue to make payments on the loan. Let’s look at an example. Let’s say that you file a Chapter 7 bankruptcy in New York and you decide that you want to keep your vehicle. As of today, the vehicle is worth $10,000 and you owe $15,000 on the loan. If you choose to redeem the vehicle then you may be able to pay the actual value of the vehicle to keep the car which would be the $10,000. This is up to the creditor to alloSecured Debt in Bankruptcyw you to do such. On the other hand, if you choose to reaffirm the debt, in the same example used above. You will enter into an agreement with your secured creditor that states you will continue to pay the car back even though you filed for bankruptcy. In this scenario, you won’t be able to fall behind on your payments later and claim that you filed for bankruptcy. Once the agreement is signed you are liable for any default payments.

If you can’t afford to make payments on your secured debt, then filing bankruptcy is the way to get the debt eliminated. Filing for bankruptcy can allow you to surrender your property without being held responsible for the balance owed on the loan. For example, if you lease a vehicle but can’t afford to pay your monthly payments, you have the right to give up your car in the bankruptcy which is called surrendering your vehicle. In this instance, you will not be held responsible for the unpaid portion of the secured loan.

If filing bankruptcy is the direction that you are headed then you should speak with a bankruptcy lawyer that can help you determine how your property will be treated if you file for bankruptcy. Secured debts and unsecured debts are not treated equally when you file for bankruptcy. A bankruptcy lawyer can help you explain what options you have if you choose to file for bankruptcy and want to keep your property. Moreover, a bankruptcy lawyer can go over your assets so that you understand what property is exempt and what property you may have to give up when you file for bankruptcy. There are different ways to handle secured debt when you file for bankruptcy and having someone assess your situation is extremely important.

If you would like more information on how debt is categorized within the bankruptcy process you should contact Karra L. Kingston Esq. today. Our Staten Island and New Jersey lawyers help many people get out of debt and start over again. We are open late hours and can even travel to you. give us a call today at (973)-979-9078