Secured Debt Options – Bankruptcy
If the debtor has consumer debts which are secured by property (mortgage, car loan), then the debtor has several options, which typically must be exercised within 45 days after the bankruptcy filing, and which is reflected in a paper filed with the bankruptcy court called a ”statement of intention”:
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Surrender the collateral to the secured creditor, make no more payments, and wipe out the debt
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Formally reaffirm the debt via a written reaffirmation agreement, which is filed with the court. In this instance, the debtor keeps the collateral and keeps making payments in either the full amount of the debt or some agreed-upon reduced amount, but is liable to the secured creditor in the event of a default in payment
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Redeem the collateral from the debt by paying the secured creditor the fair market value of the collateral
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Avoid (cancel) the lien, with the debtor keeping the property and making no further payments. This typically can be done only in cases where the debtor has put up household goods as collateral for a loan (other than a loan to purchase the goods).
It is possible for the debtor to keep the collateral, keep making the payments, and not officially reaffirm the debt. In this instance, if the debtor defaults, the secured creditor will have the right to proceed with repossession of the property, but will not be allowed to hold the debtor personally liable if the property is not of sufficient value to pay off the debt.
Contact us at:
Custer Roberson, LLP
9035 Wadsworth Parkway #2275
Westminster, Co 80021
303-893-0833
