How can I tell if a debt is secured?

The only way to tell for sure is to look at the documents you signed when you incurred the debt.  However, the kind of debt often suggests whether it is secured:

• Home mortgage.  We're starting with the obvious.  The company financing your home purchase almost certainly required a mortgage on the house.   In Arizona, almost all home financing is done under a Deed of Trust which provides a quick and inexpensive way for the lender to take the home from you if you default on your mortgage payments.
• Car loans.  This too is obvious to most people.  When you buy a car, the lender will put a lien on your car.  In Arizona and most states, liens on vehicles are shown on the title to the vehicle.  This lien allows the creditor to repossess the car anytime you default in your payments.
• Store purchases.  This comes as a surprise to many people.  When you charge something at a store it is very common for the store to retain a security interest in the item you are purchasing.  As a result, Sears may be able to take the bed, television, or even the hammer you bought from them if you don't make your payments.   The basis for this security interest is the agreement you signed when you first opened the account.
• Finance company loans.  If you borrowed money from a finance company and they asked you to list things that you own, it is very likely that they obtained a security interest in the things you listed.

My wife and I have only one car between the two of us. If I file Chapter 7, can I leave my car loan off the list of creditors and continue to make payments on it in order to keep the car?

You can't leave the car loan off the list of creditors, but you can continue to make payments on it in order to keep it.  Let me explain.

Chapter 7 is a liquidation bankruptcy.  This means that that you are required to list all property that you own in your schedules.  The trustee will be looking at your schedules to see if there is anything he can take to liquidate and pay your creditors.

If you do not list your car, you will be concealing an asset.  That is not something that you want to do.  Concealing an asset can cause the court to deny your discharge.  It can also result in criminal charges being filed against you for bankruptcy fraud.

You are also supposed to list everyone to whom you owe money.  In fact, if you do not list a creditor, you may not get a discharge from that debt. You do not necessarily want a discharge from the creditor financing the car, but there is another reason that you want to be sure to list it.

Your interest in the car is its value, less any liens on it. The trustee may want to take your car if your interest in it exceeds the exemption available (in Arizona, both you and your wife can claim a $1,500 exemption, which will allow you to protect $3,000 in equity).  You do not want to be in the position of having to explain to the trustee why he can't take the car because of a debt you failed to list.

Now that you have decided to list the car and the financing on the car, keeping it is simple (assuming your equity does not exceed the exemption--if it does, you need to consider Chapter 13).  All you have to do is continue to make your car payments and maintain the required insurance on it.

Your creditor will probably also want you to enter a "reaffirmation" agreement.  Like the name suggests, you will be reaffirming the loan on the car so that it survives the bankruptcy.  If you should later default on the loan, the creditor will be able repossess the vehicle and sue you for any deficiency.

I am not a big enthusiast for reaffirmation agreements.  If you do not enter the reaffirmation agreement, you will probably still be able to keep the car -- and the creditor can still repossess it if you default in your payments.  The creditor will not be able to come against you for a deficiency since your personal obligation for the debt secured by the car will have been discharged in Bankruptcy.

If I don't reaffirm secured debt in Chapter 7, when will I have to give the security to the creditor?

You are are supposed to file a Statement of Intention indicating whether you will be surrendering or keeping property secured by consumer debt within 30 days the start of your Chapter 7 (or before the � 341 meeting if that is earlier). You are supposed to perform under this statement 45 days after it is filed. [11 U.S.C. � 521(2); Bankruptcy Rule 1007(c).]

If you do not perform under your Statement of Intention, the Chapter 7 trustee has authority to assist secured creditors by requiring that you turn over goods securing creditors claims.  If he does this, he could do so at the time of the first meeting, which is usually 60 days after the date the petition is filed.   As a practical matter, it is exceedingly rare that trustees take such action. Therefore, in most cases it will be up to the creditor to assert its security interest.  There are four possibilities:

1. The creditor may act immediately.  Although an automatic stay is put into effect by the filing of your case, a creditor may ask the court to remove the stay to allow them to take possession of their collateral.  The court will almost always remove the stay in a Chapter 7 to allow the creditor to take possession of the collateral, and it may do so as soon as 15 days after the creditor makes the request.
2. The creditor may wait until the discharge is granted.  The stay preventing the creditor from taking the collateral ends when the discharge is granted.   The creditor is then free to take possession of the property, even though the debt which you owe has been discharged.
3. You may surrender the property.  If you choose, you may surrender the property at a any time.
4. The creditor may do nothing.  If they believe that the expense is greater than what they would realize from the secured property, they may simply do nothing.  You may have the use of the property, but their lien will remain.  If the property is titled, such as a car or trailer, you will not be able to sell the property since you will not be able to give a buyer a clear title.
   Note:  The creditor is not required to take possession of the property.  For example, if the creditor has a lien on that 1966 Corvair with a missing engine and more rust than paint, the creditor does not have to take it off your hands and save you the trouble of disposing of it.

What happens when they repepossed your car when it is paid for?

They shouldn't be doing that!  If the car was, in fact, paid for, you would have an action against the creditor that repossessed it.

However, are you sure that it has been paid for?  If you have allowed insurance to lapse, the the creditor may have placed insurance on the vehicle and added the cost of this insurance to the balance of the loan.  If you were late on payments, the contract may have provided for the creditor to add more interest and collection fees to the balance. [1-10-99]

This page was last revised: 10/11/16