What rights do secured creditors have in a bankruptcy?

Secured creditors must be treated differently during bankruptcy than those creditors without any type of security. The security helps to protect the creditor from the loss of its investment in your borrowing. Therefore, if you own property that is secured, it is necessary for you to consider how that property will be treated during bankruptcy. This differs depending on the type of the property and the value of it.

Secured Loans

Secured loans including vehicle loans, mortgages, home equity loans and loans against other items including equipment, real estate and other valuable assets. These loans are backed up by the value of the secured item, sometimes called collateral.

During the bankruptcy, one of the following could occur, as the secured creditor has additional rights.

• If you are current on the loan and want to remain paying it, you can reaffirm the debt with the lender and keep paying towards the loan after the bankruptcy.
• The property must be under the exemption value for that particular type of property. The state’s exemptions may protect the property as long as the equity (or the portion of the value that is not under a loan) is under the exemption limit.
• The credit may seize the property. This occurs especially when the repayment is behind and the property owner does not have the means to get caught up on the loan.

In Chapter 7 bankruptcy, many secured creditors will be more willing to work with you to get the loan back on track but you must have the means to continue paying towards it.

Hire an Attorney

To protect your secured debts, hire an attorney. In many instances, your attorney can structure the bankruptcy to protect these valuable properties if possible.