Everything You Need to Know About Secured Debts and Property Redemption During a Chapter 7 Bankruptcy

 Everything You Need to Know About Secured Debts and Property Redemption During a Chapter 7 Bankruptcy

People who are drowning in debt can finally get some oxygen by filing for Chapter 7 bankruptcy. The best approach to navigate the process is with the assistance of a lawyer, who can help you safeguard as many of your assets from being liquidated during the bankruptcy as is possible.

However, you should gain a general awareness of how the procedure impacts various types of debt and various types of property before you seek the assistance of a lawyer. Read on to learn more and then contact Law Offices of Terrence Fantauzzi at (909) 552-1238 for a free bankruptcy consultation.

Secured versus unsecured debt

Debt comes in two basic forms: secured debt and unsecured debt. The main distinction is that secured debt is supported by some kind of collateral, which the lender could confiscate if you default on your loan. A secured debt example would be a car loan, where the vehicle itself serves as the collateral.

In contrast, unsecured debt has no security. In order to recover their money if you don’t pay off an unsecured loan, the lender will have to file a lawsuit against you to garnish your salary or seize other assets. A credit card is an illustration of an unsecured loan.

Debt management under Chapter 7

In a Chapter 7 bankruptcy, secured and unsecured debts are handled very differently. A trustee may be able to totally discharge the majority of unsecured debts by selling off your non-exempt assets. In fact, Chapter 7’s main goal is precisely this. Debts acquired fraudulently, alimony and child support obligations, student loans, fines, and some taxes are typically exceptions.

Secured debt discharge operates differently. You must return the collateral to the lender in order to get rid of the debt without paying it off. You have a few choices if you want to keep the collateral, including keeping up with your payments and paying on time (reaffirming the obligation) or paying off the debt in full (redeeming the property).

Real estate redemption

Property redemption, which is paying off a secured loan in exchange for the right to keep the property, sounds nice but is not always feasible. It functions best when the value of the collateral has drastically declined below the amount of the outstanding loan.

Then, rather than paying the remaining sum of your loan, you may redeem the property by paying the “replacement value” or current value of the collateral. A court may establish an acceptable replacement value for you if you and the lender are unable to agree on one.

Property redemption is subject to a number of limitations. The belongings must be private and unrelated to a business. Additionally, it must be physical property rather than investments or intellectual property.

Most significantly, your equity in the property must be within the state of California’s permitted exemption limitations. To learn more about your exemptions, speak with an experienced bankruptcy lawyer by calling Law Offices of Terrence Fantauzzi at (909) 552-1238.

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