Secured Debt in Bankruptcy
Debtors filing Chapter 13 bankruptcy sometimes approach secured debt payment with confusion and trepidation. There are a lot of misconceptions about how secured debt is treated in bankruptcy and how the debtor is expected to repay secured debt through their Chapter 13 bankruptcy plan.
Let's take a look at a few of the facts about secured debt in bankruptcy:
Making A Secured Debt Current
Debtors with secured debts which have delinquent payments are expected to pay their arrears during the life of the bankruptcy plan if they want to keep the asset. For example, if a debtor owes $10,000 in back payments on their mortgage, they must repay that amount over the life of the plan if they want to keep the house. That means that each month they must pay down the $10,000 amount plus their regular mortgage payment. The same could apply to missed car payments or any other property the debtor wants to keep.
Making The Debt Contract Current
Once the debtor has repaid any missed payments on their secured debt, that debt is considered current. Failure to present a Chapter 13 bankruptcy plan which will allow the debtor to repay delinquent payments and make a debt current can jeopardize the debtor's bankruptcy case. The bankruptcy trustee will not approve any plan which does not make a secured debt current if the debtor wants to keep the property.
Secured Debts Can Survive Bankruptcy
Chapter 13 bankruptcy does not require that a debtor pay off their entire secured debt, only that they cure any arrears before receiving their bankruptcy discharge. This means that a debtor can exit Chapter 13 bankruptcy with a mortgage or a car note while simultaneously discharged unsecured debts such as credit cards.