Can You Keep Your Property If You Declare Bankruptcy?

Secured debts may stay in a bankruptcy 

If you have a home mortgage, car loan or other type of secured debt, you may wonder if you can keep the property if you file for bankruptcy. While the answer is generally yes, there are a few exceptions to the rule. You will want to discuss your particular situation with an attorney and understand the consequences of filing. 

The first thing to understand about secured debt is that it is property that is a lien on the debt. It is possible for a creditor to repossess your collateral if you fail to make your payments, but they cannot sue you if you have a bankruptcy. As long as you are making payments, you can keep your property, but you will not be able to use it to repay your secured debt. In a Chapter 13 bankruptcy, you will need to reaffirm your debt if you want to keep your property. 

If you are behind on your mortgage or car payments, you will need to reaffirm the debt in your bankruptcy. This will give you the chance to fix your financial problems and get back on track with your payment plan. However, it will also allow the creditor to repossess your property, which will cause you to lose the value of the property. 

Secured creditors are based on a security agreement, such as a deed of trust, a mortgage or a judgment lien. They can repossess your property if you do not make your payments, and they can collect interest and attorneys’ fees from your property. Once the debt is repossessed, you must reaffirm your payment or the debt will not be discharged. 

Keeping your collateral can save you hundreds of dollars. But you must keep the insurance you would have paid to secure your purchase, and you must continue to make your payments. You can either negotiate a new contract with your creditor, or transfer your collateral to someone else. Negotiations can be successful, resulting in a creditor reducing your debt, giving you an extension of time to pay, or providing other terms. 

Another way to avoid foreclosure is to sell your property. Some states allow creditors to take the equity you have in your property, if you are behind on your mortgage. If you are in an emergency and need the money, selling your property can help you repay your debt. 

Another option is to reaffirm the debt in a Chapter 7 bankruptcy. Most debts will be wiped out in a bankruptcy, but some liens associated with some secured debts will not. These liens will still be on your credit report, and they will affect your credit score. Therefore, you should check your credit report after filing for bankruptcy. 

There are some debts that can be cleared but still remain on your credit report. There is also a statute of limitation that requires time for you to get removed from your credit report. Oftentimes people think they know the rules and regulations  and then find out that what they assumed to be correct was everything but. Rules change and sometimes are not explained very well. The best thing to do is to do your homework before declaring bankruptcy. No one wants to do it but in the event you find yourself in that situation you want to know all you need to know before proceeding. 

The bankruptcy process can be confusing. One important piece of information to remember is that the automatic stay is a legal precaution to prevent the creditor from taking any further action against you. Your debtor has the right to stop any collection activity, but if you refuse, the creditor might have the right to petition the court to lift the stay. Look at websites such as for more information on bankruptcy and seek professional advice to answer your questions. 

There is a lot of bankruptcy fraud that goes around. Sometimes people get manipulated into a situation that they assume is supposed to be helpful but only come to find out they are in more financial trouble than they thought. Always read through any fine print and really understand what it is you are giving up and signing before you sign any legal documents.

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