Chapter 13 provides a possibility to surrender secure secured debt. When filing for Chapter 13 bankruptcy, many have questions about managing secured debts, such as mortgages or car loans. Here, we’ll explore what surrendering secured debt means and how it works in a Chapter 13 bankruptcy in Oklahoma City.
Understanding Secured Debt
Secured debts are loans that are backed by collateral, such as a home (mortgage) or a vehicle (car loan). If a borrower defaults on the loan, lenders can repossess or foreclose on the collateral to recover the loan amount. In Chapter 13 bankruptcy, debtors can reorganize their debts and create a payment plan over a period of three to five years, but they may choose to surrender certain secured debts under specific circumstances.
When surrendering a secured debt in Chapter 13, you give up the collateral securing the debt to the lender. In doing so, you are no longer responsible for making payments on that loan. The lender can then repossess or foreclose on the property, but once they complete that process, the bankruptcy discharges the remaining balance on the loan.
Common examples of secured debts that debtors might surrender include mortgages, auto loans, and others backed by personal property. By surrendering the property, the debtor essentially “wipes their hands clean” of the debt associated with that asset.
The process for surrendering secured debt in Chapter 13 bankruptcy is straightforward. When filing for Chapter 13, you will submit a repayment plan to the bankruptcy court. In that plan, you can specify that you intend to surrender certain secured debts. After notifying the lender of your intention to surrender the asset, the lender will begin the foreclosure or repossession process.
Impact of Surrendering Secured Debt
While surrendering secured debt can provide financial relief, it’s important to understand the potential consequences. By surrendering the debt, you are giving up ownership of the asset, which could mean losing your home or vehicle.
Surrendering property in bankruptcy can negatively affect your credit score. However, many filing for bankruptcy are already facing credit challenges, and the long-term benefits may outweigh the short-term credit impact.
In Chapter 13, the deficiency balance (the amount owed after the property is sold) is discharged, meaning you are no longer personally liable for it. This is one of the key benefits of surrendering secured debt in Chapter 13.
Alternative Options
If you do not want to surrender your secured debt, Chapter 13 provides other options. In some cases, you may be able to reduce the balance owed on a secured loan to the current value of the collateral (known as a “cramdown”). This can be particularly useful for car loans where the vehicle is worth less than the loan balance.
You may reaffirm the debt, which means you agree to continue making payments on the loan even after the bankruptcy. This is common for individuals who want to keep their homes or cars. You might also negotiate a loan modification with the lender as part of your Chapter 13 repayment plan, allowing you to keep the property under more favorable terms.
Oklahoma City Bankruptcy Attorneys
Surrendering secured debt in Chapter 13 bankruptcy can be an option for individuals who are no longer able to afford or do not wish to keep certain assets. While the process involves giving up the collateral, it also provides relief from the financial burden of continued payments and allows for the discharge of any remaining loan balance.
If you are considering Chapter 13 bankruptcy and are unsure whether to surrender your secured debt, our bankruptcy team at OKC Attorneys can help. Call us today at 405-367-8710 or ask a question online.
