Secured Property and Chapter 7 Bankruptcy
It's common to be told by your bankruptcy attorney or trustee that secured property should be paid for or returned in a Chapter 7 bankruptcy case. Meaning if you have a debt that includes secured property with a lien, you'll have to set up a payment arrangement with the creditor or just turn over the property. While this is often the case, it's not always true but it depends on the situation.
When a lien is placed against your property the creditor has interest to take it when you miss a payment. So if you pledged collateral toward securing your loan it would be repossessed (such as a vehicle) or foreclosed (such as home for missed mortgage payments). Chapter 7 bankruptcy may give a lien another chance at survival if the debtor promises to pay or return the property.
There are several options to consider when dealing with secured debts in Chapter 7 bankruptcy:
- A reaffirmation for when you want to keep property in question. This means you can reaffirm debt with a mutual agreement with the creditor.
- Redemption of secured property meaning it is redeemed at fair market value (may not include mortgages).
- Surrender property and "walk away" if you are unable to make payments.
- A "ride through" may be available in certain situations when a creditor is unable to enforce the lien against the property if there is no legal reason such as breach of contract. The debtor may be able to discharge the debt.
Have your situation evaluated with a qualified bankruptcy attorney to get a better understanding of what action should be taken for your case. In most Chapter 7 bankruptcy cases the debtor is able to keep their property including their home and vehicles.