Secured Creditors in Bankruptcy

You may wonder what will happen to your debt during your bankruptcy case. Unsecured debt like credit cards, medical debt, and payday loans will be eliminated, but the secured debt will be handled differently. Secured debt usually includes a home mortgage or vehicle loan. The lender holds the property as collateral until you have paid off the loan.

Secured Credit Cards

Some retailers like Sears or JCPenney issue secured credit cards. They claim to take your property if you fall behind in payments. While they may have a right to repossess the property, they do not have the right to enter your home to do so. These companies know this and rarely attempt to repossess property purchased with their store cards.

Some banks will also let you open a credit card that is secured by cash. They will hold the money in an account, and if you fail to make your credit card payments, they will take the money from the account for the secured credit card debt.

Home equity credit cards are secured against your home. It is almost always a bad idea to use these types of cards. If you fail to make the payments, you could lose your home.

Automatic Stay

An automatic stay goes into effect as soon as you file your bankruptcy papers with the court. This effectively interrupts all secured and unsecured creditors from taking any action against you to collect on your debt for a certain period of time. The automatic stay stops phone calls, letters, foreclosures, vehicle repossessions, and utility shut-offs to name a few.

The bankruptcy court can sometimes stop secured creditors from taking collateral by removing the creditor’s lien. This action renders the debt unsecured. Unsecured debt can often be eliminated in your bankruptcy case. Another option for dealing with secured debt as you can pay the value of the property at the time of the filing and not the amount you still owe on the loan. This enables you to keep the asset and pay considerably less for the item.

Chapter 13 Bankruptcy

Filing Chapter 13 bankruptcy enables you to restructure your debt so you can gradually pay the arrears on any secured property you have fallen behind in payments. Sometimes your interest rate can be lowered, making your payments even lower.

If you are overwhelmed in debt and worried about losing your home or other secured property, contact a Sacramento bankruptcy attorney to find out how you can get financial relief.