What happens to my Secured Property

Every debtor has three options in regard to their secured property. Those options are Reaffirm the debt, Redeem the property, or Return the property. You should discuss these options with your bankruptcy attorney, along with your significant other on how best to proceed with your secured property. Secured property is property in the possession of the debtor, but has a loan of some sort attached to it.  The most common examples of secured property are mortgages, and car loans.

The debtor needs to decide which option they would like to declare on their bankruptcy petition prior the filing date. Typically, the debtor will declare which option they prefer on the Statement of Intentions that is included in the bankruptcy filing.

REAFFIRM the debt

The debtor agrees to continue to pay the debt (loan) as it is currently written. There will be no change to the debt, debtor, or property. Essentially, the debt and property are treated as if the bankruptcy never actually occurred. The debtor must sign a Reaffirmation Agreement that needs to be approved by the bankruptcy judge.

REDEEM the property

The debtor agrees to pay the market value of the property in a lump sum. This is an effective way to retain the property if you can afford to pay the lump sum. If you are able to borrow money from a family member to cover the cost of the property, you can save thousands of dollars over the life of the previous loan.

The remaining debt would treated as an unsecured debt (like a credit card debt). In Chapter 7 cases, unsecured debts are typically discharged in full. In Chapter 13 cases, unsecured debts are usually paid back at severely reduced rates (typically pennies on the dollar) over the life of the Plan.

RETURN the property

The debtor returns the property to the creditor. Since the debtor no longer owns the property in which the debt is secured, the debt is then treated as an unsecured debt (like a credit card debt). In Chapter 7 cases, unsecured debts are typically discharged in full. In Chapter 13 cases, unsecured debts are usually paid back at severely reduced rates (typically pennies on the dollar) over the life of the Plan.

WAIT… There is a FOURTH OPTION!

The other option, not written in the bankruptcy code, is to do NOTHING. I know, that sounds absurd, but it is an option. If you do not declare the option you prefer on the Statement of Intentions, then it is up to the lender what they want to do. Some lenders are content to take no action to compel reaffirmation, content to collect the payments without a reaffirmed loan contract.