Redeem, Reaffirm or Cram Down the value to keep your secured property.
Often clients will ask me what the can do to keep their car or house in bankruptcy when there is a secured loan. Often, the loan on the home or car is a big part of the financial difficulties that my clients are experiencing. Many people want to keep their car or house, but sometimes it only makes sense if the secured debt is equal or less than to the value of the asset. There are a few different options that can help people in bankruptcy for this scenario.
First, a Chapter 13 bankruptcy may be an option especially if you are behind on your loan or mortgage. In a Chapter 13 bankruptcy proceeding, you can roll the past due balance on the debt into the three (3) to five (5) year bankruptcy plan. At the same time, the Trustee can pay your car payment or mortgage payment within the bankruptcy plan keeping you current for the term of the plan on your payments. Finally, in a Chapter 13 bankruptcy you may be able to “cram down” or reduce the total principal owed on the loan to the market value of the vehicle or home. This allows you to save money, save your home and car and stop the threatening and harassing phone calls and letters from your creditor.
In a Chapter 7 bankruptcy, to keep a house or vehicle you will have to show that you are current in your mortgage and may want to sign a reaffirmation agreement. The Bankruptcy Court and your attorney will review the terms of the agreement and the Court must, ultimately, approve the agreement believing that you can make your payments and will not default on the new agreement. You may ask your attorney to review the agreement and attempt to negotiate the terms to alleviate your payments. Still, the bank will have no obligation to negotiate and can require you to keep the same terms and remain current or foreclose or repossess the property.
A second option in a Chapter 7 proceeding is to redeem the property. Called a redemption, you may pay to the secured creditor the market value of the secured property and would then own it free and clear. There are companies and banks out there that may loan you the money as a secured debt post-bankruptcy that allows you to overall reduce you secured debt to the value of a vehicle. Redemption is a great option if you are able to pay off the market value of the secured property as you are no longer upside down and the unsecured portion of your debt with the lienholder will be treated as unsecured debt and, ultimately, discharged in the Chapter 7 bankruptcy proceeding.
Whichever option you decide to try, make sure you speak with an experienced bankruptcy attorney such as Jason Wischmeyer to make sure you are making a wise financial and legal choice. Welcome to Solutions from Wischmeyer Law Office