When you file for Chapter 7 bankruptcy, the automatic stay immediately is effective and protects you from collection activity. Many clients ask what happens to debt that is secured by collateral such as a home, vehicle, boat, motorcycle or other asset. It is important to have a plan regarding these assets before you file. A Chapter 7 debtor can only keep collateral pledged to a creditor in a Chapter 7 filing if the debtor is current on his or her payments or if the lender agrees to new payment terms. If you are seriously delinquent on your payments under the mortgage or vehicle loan, your creditor may seek relief from the automatic stay. If the Court grants this request, your creditor will be allowed to proceed with foreclosing or repossessing the asset pledged as collateral under the loan. In sum, a Chapter 7 debtor has one of four options:
- Keep the payments current
- Surrender the vehicle to the lender
- Redeem the vehicle for its value (usually NADA wholesale or its equivalent)
- Reaffirm the debt (sign a new contract which removes the loan from being included in the bankruptcy case)
If you are interested in learning more about Chapter 7 bankruptcy, contact Levitt & Slafkes to schedule an initial consultation. If you are interested in learning how filing a bankruptcy case can benefit you, contact Levitt & Slafkes, P.C., at 973-323-2953. You can also reach us by filling out our online form. We represent debtors in Chapter 7, Chapter 13 and Chapter 11 filings. Let us help you get the fresh financial start you need today.