Bankruptcy Chapter 7 & 13

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Secured Debt
When you finance a house or car, the creditor holds a security interest in the house or car. This allows the creditor to repossess the car or foreclose on the home if you fail to make the payment payments.

Stores that finance merchandise which they sell usually retain security interests in durable goods that they sell. Finance companies will often obtain a security interest in things you already own when they make a loan.  This security interest will allow the creditor to repossess the merchandise which has been financed if you fail to make the payments.

With the exception of some security interests in exempt household goods, the discharge does not remove a creditor's security interest.

Chapter 7 Liquidation Bankruptcy

In Liquidation Bankruptcy, you have three options:

  1. You may surrender the property securing the debt. The balance of the loan will be discharged so the creditor cannot seek a deficiency judgment. [11 USC � 523(a)(2)]
  2. You may reaffirm the debt in order to keep property. You must usually bring all payments current. If you reaffirm and miss payments, the creditor will be able to repossess the property and obtain a deficiency judgment as if you had not filed bankruptcy.  [11 USC � 524(c)]
  3. You may redeem the property by paying the present value of the property in cash.  [11 USC � 722]
Chapter 13 Debt Adjustment

In Debt Adjustment, your plan payment usually replaces all payments on secured debt except home mortgage payments and lease payments.  You will no longer have to make separate payments on financed vehicles, credit cards, unsecured debt, or taxes.  In many cases, the plan payment is less than the car payments alone!

If you are behind on your mortgage or lease payments, the plan can take care of the back payments.  You must make all mortgage and lease payments which become due after your case is filed if you intend to keep the home or leased property.

[11 USC � 1322]


This page was last revised: 02/18/09