What Can be Repossessed in Bankruptcy

There are two types of debts: unsecured and secured. Unsecured debt, such as credit card debt, does not involve collateral and nothing that was bought using unsecured credit can be repossessed in bankruptcy. However, secured debts have collateral attached that allow the creditor to repossess the property if you do not make payments. Creditors can repossess property even if the debt on the bankruptcy has been included in your bankruptcy filing. Although an automatic stay goes into effect as soon as you file, you can still lose the property to repossession if the creditor files a successful motion to lift the stay or if you do not reaffirm the debt and agree to continue making payments. Once the item has been repossessed,you may still be liable for any debt that is not covered once the creditor sells the items and uses the funds to pay of your balance.

Vehicles

If you do not reaffirm your debt, the creditor who holds your car loan can still repossess the car once your bankruptcy case is complete. You may be able to continue paying the debt without a reaffirmation agreement but the creditor is under no legal obligation to honor your payments and can repossess the car at any time.

Real Estate

You can still lose your house in bankruptcy if you do not make a reaffirmation agreement with the lender to continue paying on the debt. As with vehicles, if you do not officially reaffirm the debt but continue to make payments, the lender is not under any obligation to let you stay in the home and can repossess the property at any time. Likewise, if you included the mortgage in a Chapter 7 bankruptcy and received a discharge of the debt, the lender will repossess the house because although the debt is gone, the agreement you made to let the lender hold the house as collateral still stands. By getting the debt discharged, you broke the agreement and will have to surrender the property.

Secured Property

If you secured a loan with any property such as jewelery, electronics or other valuables, creditors can repossess the property if you do not reaffirm the debt and continue to make payments. This is also true for debt incurred through rent-to-own programs for items such as furniture and appliances.

Reaffirmed Debt

If you do not honor your reaffirmation agreements, creditors can repossess the property without having to go through the court system. Make timely payments to avoid repossession and contact the creditor if you are having trouble making payments.

Seeking Legal Advice

The classification of secured and unsecured debt can be complex. Consult with an attorney before making decisions regarding the repossession or reaffirmation of property in bankruptcy.