Beware Of Advice From Non-Attorneys: What Are The Choices For Secured Debts In Bankruptcy?

I recently visited a bankruptcy law blog which was supposedly written by an attorney offering advice on debts in bankruptcy. Why do I say, “supposedly?”. The writer discussed the importance of knowing what kind of debt you might have: secured vs. unsecured.

That was a good point, but then, the writer made the following incorrect statement–that Chapter 7 debtors have a option to choose whether to keep property and pay creditors or surrender the property as payment to your creditors. The author goes on to state that in Chapter 13, the debtor is allowed to keep property provided all the debts are paid back. WRONG WRONG WRONG!!!!!

1. Chapter 7 debtors have three official choices: (1) surrender; (2) reaffirmation; and (3) redemption. There is an unofficial fourth choice: “keep and pay” which depends on state law.

2. Chapter 13 debtors have choices too: (1) pay the debt in full at the regular interest rate (not great lawyering, but it is a choice); (2) pay the debt in full at a much lower interest rate (usually between 4-10%); (3) pay the debt in a lower amount and at a lower interest rate; (4) pay the debt in a lower amount and at no interest (depending on what the local bankruptcy court has held to be appropriate) (5) surrender the item and pay nothing; OR (6) surrender the item and if the debtor is paying unsecured creditors in his plan, pay anywhere from 0-100% of the debt. And then there is the 7th option for mortgages: Keep the house and don’t pay the second mortgage (if the facts are right!!!)

There are so many different ways of dealing with the debt, but saying that if the debt wants to keep property that they have to pay back ALL their debts to their creditors is just plain WRONG.

Talk to an experienced bankruptcy attorney in order to determine which remedy is right for YOUR situation. And beware of bad advice!

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