Filing for Chapter 7 bankruptcy can wipe out many of your debts and allow you a fresh start in your financial life. However, not all debts are treated the same way. Secured debts, in particular, come with added complexities because they are backed by collateral – property or assets the lender can take if you default on the loan.
Secured debts include debts like mortgages, auto loans and other financial obligations where specific property is tied to the debt. If you are considering filing for Chapter 7 bankruptcy, understanding how these debts are handled can help you plan, navigate the process more effectively and make informed choices. Here is what you need to know if you have any secured debt.
The options available for you
You can let the property go back to the bank. It means surrendering or giving up the collateral and discharging the underlying debt. This option is available to everyone with a secured debt.
Alternatively, you can keep the property and continue making payments but only if you can protect your equity with a bankruptcy exemption. This is known as reaffirming the debt. Lastly, you can redeem the property by paying its fair market value or what it is worth in one lump sum payment. However, you must meet other requirements to do this.
Depending on your goals—whether you want to keep your home, car or prized possession or you simply can’t afford to continue making payments—you’ll need to make specific choices that impact your financial future. This is where legal guidance proves invaluable. It can help you protect your financial interest when filing for bankruptcy and avoid mistakes that could pull you down during an already challenging moment.
