Secured Debts And Bankruptcy

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Secured Debts And Bankruptcy

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Secured debts and bankruptcy have a very deep relation with each other. The most powerful aspect of bankruptcy linked to secured debts is the automatic stay. This does not allow any lender to foreclose or repossess any collateral or asset unless and until directed by the bankruptcy court. This collateral or asset in question could be a car or a house pledging which a debtor might have secured debt. However, an automatic stay does not mean the debtor can get a chance to keep the asset without making any payments. To know more about bankruptcy terms and conditions, log on to

Managing secured debts during bankruptcy

It is important to pay off at least the worth of the asset in question to retain the asset. This holds true, irrespective of the type of bankruptcy being filed in chapter 7, chapter 13, or even chapter 11. In the case of chapter 7, there are two alternatives to claiming possession of the secured asset. One is by redeeming the asset, which means you will pay off the current value of the collateral in a lump sum single payment. This situation is unlikely during bankruptcy but there might be another option which is to reaffirm the debt. In this scenario, the debtor has to pay off all the pending dues to the lender and reaffirm the debt from the initial terms and continue to make monthly installments as per the initial loan agreement.

If a debtor fails to oblige monthly installments as per the loan agreement, the lender can foreclose or repossess the asset. This also can be a drawback to the debtor if the asset is a heavily depreciating asset like a car and the debtor might end up paying more than the worth of the asset. In case the debt is reaffirmed, the debt is out of bankruptcy proceedings and its debtor’s responsibility is to deal with the lender to continue to make regular payments or lose the asset eventually.

Chapter 13 and lender concerns

In the case of chapter 13, most of the assets are retained and some or all unsecured debts are discharged based on the disposable income of the debtor. Not making payment as per the recommended chapter 13 reorganized payment plan can be critical to the debtor. If the debtor had availed of any sort of discharge, failure to make payment as per the payment plan can lead to zero discharge.

However, the biggest concern for the lenders in chapter 13 is with the depreciation of the collateral asset. A chapter 13 bankruptcy could last for 3-5 years which hampers the asset value significantly, especially for an asset like a car. This handicaps the lender and delay could mean the lender might be able to extract very little of the collateral asset, meaning bigger losses for the lender. The lender in this scenario can file a motion in the bankruptcy court during the chapter 13 bankruptcy to reacquire the asset as the debtor is not current with the payments.

Agreements between lenders and debtor

In many situations, the debtor and lender can get into an agreement outside the bankruptcy court. This not only saves about $1k in attorney cost, motion cost, and other costs incurred by the lender to otherwise reacquire the asset through the bankruptcy court. This agreement can help the debtor to be current on payments and settle the previous dues over a period of 3-6 months. Once, the catch-up is done, the debtor must make sure he/she is current with the payments to retain the asset. These agreements allow lenders to retain the asset without any motion if the payments fail.

Should you get into such agreements? What are other ways lenders use to extract money? What is the best walk around in my case? If these questions are ringing a bell in your mind, then 888-297-6203 is the right number you should be ringing. You can connect with top attorneys from Los Angeles & Dallas, TX on this number.