Filing for bankruptcy is an incredibly complicated process that can be difficult to navigate. One area of this process you may have questions about is how different kinds of debt are handled, including secured debt. If you’re unsure what makes a debt secured or what happens to these debts during bankruptcy, you’ll want to keep reading. The following blog explores these matters and the importance of working with a Memphis, TN consumer bankruptcy lawyer if you’re ready to file for bankruptcy.
What Is a Secured Debt?
A secured debt is a debt you owe that has been secured by collateral. This kind of debt is different from others because it is represented by physical property. For example, if you purchase and finance a car, the vehicle is considered collateral. As such, handling this kind of property during bankruptcy can be difficult. This is because it is connected to both the property and the borrower. Unlike an unsecured debt, in the event you fail to pay a secured debt, it can be repossessed by the creditor.
What Happens to These Debts?
If you have secured debts, understanding what will happen to them during bankruptcy is critical. However, you should also understand that what will happen is dependent upon the type of bankruptcy you choose to pursue.
As such, if you decide to file Chapter 7, you’ll find that your assets can be liquidated and sold to repay creditors. As such, if you have secured debts, you’ll need to determine if they are considered exempt or not. If they are exempt, they cannot be seized during this process. However, you’ll need to continue paying the debt, even if your personal liability is discharged at the conclusion of your case. This is because a lien is attached to the collateral, meaning the creditor can still repossess the property. You also have the option to surrender the collateral, which allows you to give up the property and remaining debt. For example, if the loan payments are too high, the interest rates are too high, or you owe more than the value of the collateral, this may be in your best interest.
However, if you choose to pursue Chapter 13 bankruptcy, the process is slightly different. This is because Chapter 13 allows you to enter a repayment plan to pay off the debt. For example, if you have a loan secured by personal property, the court can reduce the loan to the asset’s market value. The remainder of the debt will become unsecured. As such, you can pay off the secured portion of the loan during the repayment plan. The unsecured debt can be forgiven at the end of your case.
Navigating bankruptcy can be an incredibly complicated process. That is why it’s in your best interest to discuss your legal options with an experienced bankruptcy attorney. At the Arnold Law Firm, we understand that bankruptcy is incredibly complex and overwhelming. That is why our team is here to assist you. We can provide you with the tools and advice you need to receive the financial fresh start you deserve. Contact us today to learn more.
