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When you file for bankruptcy, you want to make it count. That means including every single debt on your bankruptcy paperwork. If it's not listed, you cannot be free of it. That being said, the type of debt you have could influence the way bankruptcy deals with it. Read on to find out why some form of debt are treated differently than others.
Secured Debts and Unsecured Debts
To understand more about what happens to debt during a bankruptcy procedure, you should divide your debt up into two buckets. In one bucket goes your credit card debt, personal loans, medical bills, and other debts that are not secured by collateral. In the other bucket goes debts like auto loans and mortgages. Those debts are secured by collateral – the vehicle and the home itself. If you fail to make payments on unsecured debts, no property losses will occur. If you fail to make payments on your auto loan and mortgage, your car might be repossessed and your home could be foreclosed upon. The owners of the debts have the power to take back the property when it comes to secured loans. You can still include secured loans in your bankruptcy, but if you are behind on paying the debt bankruptcy does nothing to protect it from being repossessed or foreclosed.
Property at Risk
The chances for losing property when you are up-to-date on the payments is small and depends on several factors. All states allow chapter 7 filers to use exemptions to protect their home and other property. The amount of the exemption and the way it can be used varies a lot from from state to state. In all but cases where filers have a great deal of valuable property, the exemptions prevent any property from being taken and sold for the creditors.
Reaffirming Debts
Since some of your property is except and protected, you might wonder what happens to your property when you are up-to-date on the payments. It is safe from seizure and it cannot be repossessed, so what happens to the loan once you file bankruptcy? The answer is reaffirmation. Typically applying to auto loans, a reaffirmation allows you to keep the vehicle and continue making payments. With this agreement, you are promising all over again that even though the rest of your financial situation is under the control of the bankruptcy court, you will pay the auto loan until it's paid in full.
To find out more about reaffirmations, speak to your bankruptcy attorney.
Share30 May 2019