When you file for bankruptcy you can choose to keep or surrender secured collateral, such as your house or car. Depending on what chapter you file, you can also use a bankruptcy to become current on any payments that you may have missed.
Keeping your Secured Collateral:
All secured debts, such as mortgages and car loans that the debtor intends to keep must continue to be paid; or if the debtor rents their home or leases their car they must continue to make all of their rent or lease payments. Chapter 13 debtors should make sure that any direct payments are paid after the date the bankruptcy is filed (post-petition). This is excluding any creditors which are paid through the bankruptcy plan. Home owners insurance and automobile insurance must be maintained on any home or vehicle that the debtors intend to keep after the bankruptcy. All Home Owners Association fees must continue to be paid after the bankruptcy is filed. The debtor must also make all utility bill payments on any utilities that they intend to maintain during the bankruptcy and thereafter.
In a Chapter 7 Bankruptcy, a debtor can elect to file a reaffirmation agreement to keep their secured collateral. A reaffirmation agreement is a voluntary promise to continue to pay for your house or car. A reaffirmation agreement means that you will remain liable for the debt; meaning that if you fail to pay, the creditor can come after you for the delinquency. In a Chapter 13 Bankruptcy you can pay your secured debt through the Chapter 13 Plan. Sometimes you will continue to make your payments directly to the lender; usually a mortgage.
Surrendering your Secured Collateral
Sometimes a debtor realizes that they can no longer afford to make payments on their home or car and decide to surrender it during the bankruptcy.
While the bankruptcy will discharge the underlying obligation to pay for the debtor’s mortgage or car loan, it is still ultimately up to the bank on when to retake possession of the debtor’s home or car. Therefore, the debtor will still be responsible for maintaining the insurance on the property and is responsible for its up keep (mowing the lawn, trimming the hedges, etc.).
Often times, it may take the creditor a while to repossess or foreclose on a car or home. A debtor may continue to enjoy the property even after the bankruptcy, but must be cautious because the creditor will foreclose and evict the debtors at some point.
Making the decision to keep or surrender secured property in bankruptcy is extremely important in the bankruptcy process. The attorneys at Fears Nachawati will be able to walk you through this important process. To get started with a free consultation, call us today.