Secured Creditors in Bankruptcy

When filing bankruptcy, you may wonder what will happen to your debt. Unsecured debt, like credit cards, loans, or medical debt will be eliminated, but secured loans must be handled a little differently. Most secured loans are on a home mortgage or car loan. The lender will hold the property as collateral until you have satisfied, or paid off the loan.

Secured Credit Cards

Credit cards secured by your purchases like Sears or J.C. Penny claim to take your property if you fall behind in your payments. While they may have a right to claim the property, they do not have the right to enter your home. These companies almost never attempt to repossess any property.

Credit cards secured by a bank account are another form of secured credit. You must submit the amount of your credit limit to the bank, they will hold the money and If you fail to make the payments, they will take it from your bank account.

Home equity credit cards, each time you use this method, the balance is secured against your home. These type of cards are almost always a bad idea, and if you fail to make the payments, you could lose your home.

Automatic Stay

When you file your bankruptcy papers, an automatic stay goes into effect. This effectively stops all creditors from taking action against you to collect on a debt. This includes any home foreclosures or vehicle repossessions.

The bankruptcy court can stop secured creditors from taking collateral by removing the creditor’s lien, and this action makes the debt unsecured. Another option in dealing with secured debt in bankruptcy is you can pay the value of the property and not the amount you owe. This enables you to keep the asset and pay considerably less for the item.

Chapter 13 Bankruptcy

If you file a Chapter 13 bankruptcy, you will be able to restructure your debt and you can gradually make back payments on any secured property you have fallen behind in. Sometimes you can even make lower monthly payments by lowering the interest rate on the loan.

If you have questions about your debt, contact a Dallas bankruptcy attorney to find out how you can eliminate most debt, and get a fresh start.