Q: Do you still have to pay secured creditors after filing for bankruptcy?
A:
It depends upon what you want your bankruptcy to do for you. Do you want to keep the collateral that you pledged to secure your secured debt? Or, do you want to give the collateral back?
In a Chapter 7 case, you get a quick discharge of all debts, both secured and unsecured.
That discharge means that you no longer have any personal responsibility to pay the debt. But, a Chapter 7 discharge will not remove the lien against collateral that you pledged to the creditor. So, your secured creditor cannot sue you for the money, but they may repossess or foreclose your home, or repossess your car or boat.
In a Chapter 7 the rules state that you have 3 options.
1) Give the collateral back and stop paying;
2) Reaffirm the debt for the secured loan and keep making payments, or;
3) Redeem the property.
If you Reaffirm, the debt will not be discharged and you'll still be personally responsible for the debt, again. You keep the collateral and your loan is paid just as it was before the bankruptcy.
A Redemption is useful if you are "underwater" on the debt, i.e. the collateral is worth less than what you owe the lender. You can pay the lender the full fair market value of the collateral in one payment, you keep the collateral and the lender has to release the lien.
A fourth, unmentioned/unofficial option may be to keep the collateral without reaffirming or redeeming and making payments. There is some risk of losing the collateral, but you keep your discharge and may be able to keep the collateral. Mortgage companies will continue to accept your monthly payments, and under recent new rules, should continue to send statements. Many car lenders will continue to accept your payments on a discharged debt, too, but there are some that will try to repossess.
In a Chapter 13 case,your options are similar. You can propose a plan that does any of the above things and there are other options for you. But, in short. If you want to keep the collateral, Pay. If not, Don't. and the creditor may take the property back.
Its always the best choice to talk to a Bankruptcy attorney. Many will offer a quick free consultation.
Thomas. R. Morris agrees with this answer
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