Avoiding Repossession of Your Property During Bankruptcy

Many people are surprised to learn that they may still face repossession of their property even after filing for bankruptcy. Of course, this can only apply to those who have debts that are secured by property. However, if they fall behind in those payments, even if the debts are discharged, or erased, the lender may still repossess the property that secured that debt. The owners do, however, have a way to avoid repossession, even after bankruptcy.

Bankruptcy Processes

Bankruptcy begins with an automatic stay, or hold, on all debt collection, repossession, or foreclosure processes. This hold lasts for the entire length of the bankruptcy. That period varies, depending on the type of bankruptcy. For example, in the two most common plans, that period may last several months to over five years. A chapter 7 bankruptcy lasts only as long as it takes the bankruptcy trustee to determine which property, if any, to liquidate and which debts, up to one hundred percent, can be discharged. On the other hand, chapter 13 bankruptcy may last a little more than five years. This includes the time it takes to formulate a new debt repayment plan, have it approved by the bankruptcy court, and fulfill that plan. No chapter 13 plan may last longer than five years, however.

During that debt collection hold, the bankruptcy trustee determines which debts may be discharged, and those amounts vary widely between the two common types:

• Chapter 7 – most or all debts (except priority debts such as many tax debts, school loans, alimony, and child support)may be discharged

• Chapter 13 – a substantial part of all debts are repaid, especially arrearages, priority debts, and the value of non-exempt property, while those that remain at the end of the plan are generally discharged

Avoiding Repossession

Even though a repayment plan is completed and all remaining debts are discharged, a filer may still face debt payments on secured loans. Those loans may well have been discharged in their bankruptcy, but a lien cannot be discharged. As long as there is a lien on property, the lender still has an interest in that property. At that point, the borrower has two options:

• Reaffirm their loan and promise to repay the debt and keep the property. This generally applies to a home or a car. They may attempt to renegotiate the loan under new terms or they may continue to pay the loan under the old terms. However, even one missed payment may cause the loan to be in default and allow the lender to repossess or foreclose.

• Give up the property to the lender. If they do not choose to continue to make their loan payments, or if they are unable to do so, they may simply allow the lender to repossess or foreclose. However, the lender cannot file for a deficiency judgment if the debt has already been discharged in bankruptcy.

Getting Legal Help with Repossession after Bankruptcy

There are many benefits to bankruptcy; however, discharging liens on property securing debts is not one of them. There are steps a debtor, or their experienced bankruptcy attorney, can take to reduce the payments on secured debts or to cram down those debts, allowing the debtor to pay them within a chapter 13 repayment plan. A skilled bankruptcy lawyer may be able to help a filer work out these complex processes and avoid repossession or foreclosure.