Can I Keep Property That I've I Pledged as Collateral For a Debt?
Deciding what to do about secured property. Surrender, Redeem, Reaffirm, Ride Through?

Can I Keep Property That I've I Pledged as Collateral For a Debt?

When you file, you'll be asked by the court to decide what you want to do about property you've pledged as collateral, and then you have 45 days to act on it. Your options include surrendering the property, "redeeming" the property by essentially buying it outright at it's current (reduced) market value, or "reaffirming" the debt via a contractual agreement to retain your personal liability and keep making payments, or in some cases, "ride through" - that is, keep making payments on the secured debt even though your personal liability has been wiped out.
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Updated: 2021-11-23
Secured debt vs. unsecured debt: What's the difference?
 
Can I Keep My Car or Truck If I File For Chapter 7 Bankruptcy in ?

Note that property that is collateral for a purchase-money loan (such as a car securing a car loan or a home securing a first mortgage) is not protected by exemptions from repossession actions by that lender. Any equity you may own in the property is protected and may give you certain rights against holders of judgment liens and second or third lien holders.

Let's repeat that first point before we go further: Exemption laws do NOT protect you from losing property if you've voluntarily pledged the property as security for a loan and you don't make the payments.

Example: 
Unsecured vs Secured Debts

So... for example. If you owe $30,000 to credit card companies, that debt is "unsecured". There is no collateral attached to it. No matter what they threaten, the credit card company can't take any of your exempt property. Likewise, most medical bills and lawsuit settlements are "unsecured" debts. If an unsecured creditor bothers to go to court get a judgment against you, they can get the court to attach a "judgment lien" to your property. But if the property is exempt, you typically can (and should) ask the bankruptcy court to remove that lien from your property (but you have to ask -- its not automatic).

Continuing the example ... If you were persuaded to pay off your credit cards and other unsecured debts with a lower interest, "secured" loan, say, from a loan consolidation company, you probably pledged your home equity or other property as collateral.

As a general principle, once you've voluntarily (i.e. through a contract or signing something) pledged your property as security for a loan, the exemption laws no longer protect you. The creditor can repossess the property you pledged regardless of whether it is protected by an exemption.

Stating your Intention of What You Plan To Do About Your Collateral

The court will ask you to declare what you intend to do about your secured debts, and the collateral that secures them. 

The so called "Statement of Intention" form lays out your options.

  1. Surrender the collateral
  2. Redeem the collateral (pay its current value in a lump sum)
  3. Reaffirm the debt (have it not affected by your bankruptcy)
  4. (not on the form - Retain and Pay (the "Ride Through" option)

 


Jurisdictional relevance: There are versions of this article for each State.
Select Your State:

You may also be interested in:

  • Secured debt vs. unsecured debt: What's the difference?

    Bankruptcy helps you get rid of unsecured debt. It does not eliminate secured debts, where you have pledged collateral for a loan, such as a car loan or a mortgage. When you file bankruptcy you must declare what you intend to do about your secured debts.

  • Can I Keep My Car or Truck If I File For Chapter 7 Bankruptcy in ?

    The answer is, it depends.. on a lot of things: Do you lease or own? If you own the car and are making payments on it, how much of the equity in the car is protected by exemptions allowed in your state? Most people who file for bankruptcy can end up keeping their car, or at least some kind of vehicle that can get them to work and back, but the answer depend on your particular circumstances.

  • Exemptions & "Secured Debts"

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