You can group your personal debts into two categories. Your unsecured debts include your credit cards and all the money you owe businesses or service providers. An outstanding hospital invoice would be an unsecured debt. There is no property helping to protect the creditor’s claim.
Secured debts are different. There is a legal instrument connecting the debts to valuable personal property. The most common forms of secured debts modern Americans have are mortgages and car loans, although some people also have secured lines of credit attached to personal property or protected by a financial deposit.
What happens to your secured debt when you file for bankruptcy?
You can halt collection activities
For many people filing for bankruptcy, the protection of an automatic stay is the most beneficial way that the bankruptcy affects their secured debts. If you believe a lender might soon foreclose on your home or attempt to repossess your vehicle, the automatic stay could prevent those aggressive collection efforts and give you an opportunity to catch up on your debt.
You can negotiate with the lender
Particularly if you file for Chapter 13 bankruptcy, you will be in a position to negotiate with your lender and possibly modify the existing loan to make it easier for you to catch up on your payments. While you cannot discharge the balance without forfeiting your rights to the collateral property, you may be able to reduce the payments that you make or extend the repayment period.
Learning more about how personal bankruptcy affects secured debt can help you decide if filing bankruptcy would be a smart decision.