Secured Debt and Bankruptcy
Under a bankruptcy proceeding, secured debt is treated differently than unsecured debt. Secured debt refers to an entire debt or part of a debt that is secured by collateral. For example, when you buy a home, you give the creditor the right to foreclose and take the home as payment for your loan if you do not pay it. Similarly, a car is the collateral for an automobile loan, although the car rarely covers the entire cost of the loan. It is important to understand how secured debt is treated under a Chapter 7 or Chapter 13 bankruptcy so you know if you are making the right choices in the handling of your debts and discharging as much of your obligation as possible. The attorneys at the Oswalt Law Group ib Phoenix can help you decide which type of bankruptcy is right for you.
Secured Debt and Chapter 7
Generally those who file Chapter 7 have little or no secured debt. This is because the restrictions for keeping secured collateral under Chapter 7 are numerous. In general, Chapter 7 is a liquidation form of bankruptcy designed to allow debtors to turn over any collateral to the creditors and simply discharge debts. However, there are other ways to handle secured debt under Chapter 7, such as reaffirming particular debts if allowed. Homeowners who have equity in their homes may also be able to take advantage of a certain amount of exemption in a bankruptcy proceeding that may help them keep their homes.
Secured Debt and Chapter 13
If you want to keep your secured collateral, a Chapter 13 may be a better choice. Under Chapter 13, secured debts can be reaffirmed, often at a lower interest rate, while unsecured debts can be discharged. Although there are many rules you must follow, a Chapter 13 is usually the best way to keep your assets but discharge your debts. However, Chapter 13 is not available to all debtors. You must have less than the statutory amount of debt, for one thing, and you must also have a steady income. Chapter 13 is also referred to as a “wage-earner” plan because it is designed for those who are working to discharge insurmountable debt while keeping their cars and, if appropriate, their homes and other secured collateral. If you have questions about secured debt and bankruptcy, contact Oswalt Law Group in Phoenix today.