If you are considering bankruptcy, you may be concerned about being able to keep your car and home. The good news is that you will likely be able to keep your vehicle and home. Let’s start with home loans. If you have less than $60,000 of equity (calculated as home value – mortgage total) then you can keep your home in a chapter 7 or 13. If you have more than $60,000 of equity in your home it may be better for you to file a chapter 13 case instead of a 7. You should discuss your home value and mortgage obligations with an attorney to determine if this is a reason to file a chapter 13 case. The differences between a chapter 7 and chapter 13 bankruptcies were discussed in part I. If you file a chapter 13 case, you will pay your home mortgage as usual and keep your home. Any amount that is for past-due payments will be handled through your monthly payment under your plan. If you file a chapter 7 case, you can sign an agreement to “reaffirm” your obligation to pay your mortgage. By signing the reaffirmation agreement, you get to keep your home and it also means you do not get a discharge of the mortgage debt. If your home is worth significantly less than your mortgage or if you have many past-due payments, you should discuss this with an attorney.
For car loans you have three choices: surrender, reaffirm, or redeem. If you choose to surrender your vehicle, that means the creditor will come take the vehicle at a time and place arranged with you. You will get a total discharge of that debt once the lender has taken the vehicle back. If you choose to reaffirm the debt, you will be obligated to repay the full amount of the debt. If your vehicle is worth a lot less than your loan amount, you should carefully consider if you can afford the monthly payments under the loan before signing a reaffirmation agreement for the debt. The final option is rarely used, redemption. In order to redeem the property, you must be prepared to purchase the car at its full fair market value. For example, if the car is worth $1,000 and the loan is $3,000, you can get a discharge of the debt by paying the lender $1,000.
If you have a furniture, jewelry, or electronics loan that gave the lender a lien on the items, the loan is considered a secured debt. The furniture, jewelry, or electronics are called collateral for these loans. If you want to keep the collateral after filing for bankruptcy, you will need to do one of the three options available for all secured loans; surrender, reaffirm, or redeem. These are detailed above. The key difference for smaller value items is that redemption is much more common compared to car loans. Your used furniture is likely worth a lot less than it was when you bought it and it’s worth considering this option.
When deciding what to do about your car, home, or furniture loan, it’s important to think about what kind of payment you can afford going forward. The bankruptcy is your one chance to shed this debt and signing a reaffirmation agreement means you keep the debt that you reaffirm.
Trev Peterson and Carly Bahramzad represent debtors filing for bankruptcy. You can reach them by phone at 402-475-7011 .
Congress requires that I disclose that our firm is a “debt relief agency” under the Bankruptcy Code. We help people file for bankruptcy relief under the Bankruptcy Code. As with all articles on this website, the contents of this article are not intended as legal advice for any specific legal problem. Nothing in this article is intended to create an attorney-client relationship between the author and the reader. The author is licensed to practice law in Nebraska only, if you are involved with a bankruptcy in a state other than Nebraska you are encouraged to consult with an attorney licensed in the state in which the bankruptcy case is pending.