Eliminating or Modifying Secured Debts. As you already know, many people file bankruptcy to eliminate unsecured debts. But what about secured debts? Well, secured creditors normally retain a lien on secured property even after the discharge is entered by the Court. However, the Bankruptcy Code provides for ways handle secured creditors.
In a Chapter 7 bankruptcy, secured property may be surrendered, reaffirmed, or redeemed. If surrendered during the bankruptcy, then the debtor usually does not owe a deficiency balance. If reaffirmed, you would still have to pay for the item as though you had not filed bankruptcy, except you now, after filing bankruptcy, would have to wait a period of time before being able to file again. And if you reaffirm, you are paying the creditor in one lump sum the current value of the secured item.
In a Chapter 13 bankruptcy, many secured liens may be able to be modified or eliminated, especially in the case of a lien being an impairment to exemptions. In a Chapter 13, the payments on the secured items could be lowered, and if there is any money in arrears, it can be paid during the bankruptcy so at the end of the bankruptcy, you would be current on the payments. This could allow you to keep secured property, such as a car, house, boat, furniture, or jewelry, that would otherwise be lost to the creditor.
The options available will vary somewhat on a case by case basis, and if you have any questions regarding the treatment of specific secured property in your case, you should seek the advise of a local lawyer that files bankruptcies for his or her clients in your area.
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