Can You File Bankruptcy On Secured Loans?

Filing for bankruptcy can be a way to get some relief from overwhelming debt. It is important to understand, however, that filing for bankruptcy does not erase all of your debts. There are certain types of debt that are not able to be discharged. One of the most common types of debt that cannot be discharged is secured debt. Secured debt is debt that is secured by collateral, such as a car loan or a mortgage. So, can you file bankruptcy on secured loans?

The answer is yes, but it is important to understand how it works. When you file for bankruptcy, you are asking the court to discharge your unsecured debts, such as credit cards or medical bills. However, secured debts are not eligible for discharge. This means that the creditor still has a right to the collateral that was used to secure the loan. For example, if you have a car loan, the creditor will still have a right to the car even after you file for bankruptcy.

When you file for bankruptcy, the court will issue an order called a “stay”. This stay prevents the creditor from repossessing the collateral while the case is ongoing. This means that the creditor cannot take your car or foreclose on your house while the case is being heard in court. However, once the case is over, the creditor can take back the collateral if you are not able to keep up with the payments.

If you are unable to continue making your payments on the secured loan, you can ask the court to modify the loan. This means that the payments can be reduced or the interest rate can be lowered. The court will look at your income and expenses and determine if you are able to make the modified payments. If you are, then the court will modify the loan and you will be able to keep the collateral. If you are unable to make the modified payments, then the court may order that the collateral be sold to repay the loan.

It is important to remember that filing for bankruptcy does not erase your secured debt. The creditor still has a right to the collateral and can take it back if you are unable to keep up with the payments. However, filing for bankruptcy can give you some breathing room by preventing the creditor from repossessing the collateral while the case is ongoing.

Pros and Cons of Filing Bankruptcy on Secured Loans

Filing for bankruptcy on secured loans can be beneficial in some cases, but it is important to understand the pros and cons before making a decision. Here are some of the pros and cons of filing for bankruptcy on secured loans:

Pros

• The creditor cannot repossess the collateral while the case is ongoing.
• The court may modify the loan, which could lower the payments or interest rate.
• Filing for bankruptcy will stop harassing phone calls and letters from the creditor.

Cons

• You may have to surrender the collateral if you are unable to make the modified payments.
• Filing for bankruptcy can lower your credit score.
• The creditor may still be able to sue you after the bankruptcy is discharged.

Filing for bankruptcy can be a good way to get some relief from overwhelming debt. However, it is important to understand that filing for bankruptcy does not erase all of your debts. Secured debts are not eligible for discharge, which means that the creditor still has a right to the collateral. If you are unable to keep up with the payments, the court may order that the collateral be sold to repay the loan. It is important to understand the pros and cons of filing for bankruptcy on secured loans before making a decision.