What happens to secured debt in bankruptcy?

When it comes to bankruptcy and secured debt, there is a great deal of confusion among most debtors. While unsecured debts are either discharged in a chapter 7 bankruptcy filing, or eligible for inclusion in a repayment plan in a chapter 13 bankruptcy filing, secured debts are not treated in the same manner. By definition, they cannot be, since a secured debt has assets or collateral that are securing it. 

The exact nature of the way the secured debt is going to be treated depends a lot on what the secured debt is for and what the bankrupt individual chooses to do. For example, when it comes to your vehicle, you usually have a few choices. One choice is to try to keep the car, and continue to pay on the car loan. You will often need to "reaffirm" the debt or promise to the lender that you plan to pay it despite the bankruptcy. Another option may be to just turn the keys to the vehicle back over. This would allow you to essentially relieve yourself of the debt and if you still owed money (aka if you were upside down on your car loan), it could be included in the bankruptcy. Your options are similar for mortgages, although in some instances for investment properties you can also take a third option called a "cram down" in a chapter 13 bankruptcy. This would allow certain types of eligible mortgage debt to be renegotiated: if you owed more than the home was worth, for example, you could have the excess amount considered unsecured debt and included in your repayment plan. 

To get help understanding what is going to happen to your specific type of unsecured debt, it is in your best interests to speak with a lawyer.