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Understanding Secured Debts in Your Jacksonville Bankruptcy


Unsecured debt is debt like credit card debt which is not backed by any asset. Secured debt, on the other hand, is debt that is backed by collateral. Common examples would be a mortgage (which is backed by the home) and a car loan (which is backed by the vehicle). In this article, the Jacksonville bankruptcy attorneys at the Law Offices of Carol M. Galloway will discuss what happens to secured debt in various forms of bankruptcy.

The impact of bankruptcy on secured debts 

When you file for any form of bankruptcy, an automatic stay goes into effect while your bankruptcy is being processed. In the case of secured debt, that means foreclosure or actions or repossession of a vehicle must temporarily halt. The creditor can file an adversary action to get the automatic stay lifted in the event that the debt is unlikely to be repaid once the bankruptcy moves forward. However, you do get a short reprieve from adverse creditor actions once you file for bankruptcy. This can buy you some time to make additional moves.

If you file for a Chapter 7 bankruptcy and have secured debts, you can discharge most of the secured debts or at least your obligation to pay them. However, you would surrender the asset that backed the secured debt. For example, if you file for Chapter 7 bankruptcy and you currently owe on a mortgage, you could discharge the debt you owe on the mortgage, but the bank could still foreclose on your home. The same holds true for an auto loan. You can discharge the amount you owe on the loan, but the auto lender would still have the right to repossess the vehicle.

In Chapter 13 bankruptcy, you reorganize your debts so that you make a single monthly payment to the bankruptcy trustee. In the case of a Chapter 13 bankruptcy, you might be able to save your home or your car if you can continue to make payments on them. Chapter 13 allows for more flexibility when it comes to secured debts. You may be able to reduce your payments or interest rates.

Options for dealing with secured debt in bankruptcy

 You have a number of options for dealing with a secured debt in bankruptcy. These include:

  • Surrendering the asset – You have the option of surrendering the asset to the lender. In this case, you would not have to make future payments on the loan, but you would lose the asset that backs the loan. In many cases, if you cannot afford to pay the loan, surrendering the asset may be your only viable option.
  • Reaffirmation agreements – This type of agreement means that you continue to pay the debt as if the bankruptcy never occurred. You would continue to make payments and you would be able to keep the asset attached to the debt.
  • Redemption – This option means making a lump-sum payment to the creditor to keep the asset. This can be beneficial if the asset is worth less than the debt remaining on it.
  • Cramdown in Chapter 13 bankruptcy – A cramdown is when the court reduces the amount owed on a secured debt to match the current market value of the collateral. This option is available in Chapter 13 bankruptcies for certain types of debts.

Talk to a Jacksonville Bankruptcy Attorney Today 

The Law Offices of Carol M. Galloway represent the interests of debtors in Chapter 7 and Chapter 13 bankruptcies. Call our Jacksonville bankruptcy attorneys today to schedule an appointment and we can begin discussing your next moves immediately.

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