| Read Time: 3 minutes | Bankruptcy

Bankruptcy for everyone is a strange concept. When the entity or company is unable to pay unpaid obligations, it is a judicial decision that requires the judge to seize away money.

Consequently, the first question most people have about bankruptcy is: Can I apply for bankruptcy and retain my home or car? The response to the question relies on the bankruptcy chapter and the laws of the state. It is, nevertheless, possible to protect your car and home in some situations.

Unsecured vs. Secured debts

It is necessary to note that the duty to pay unpaid obligations is not relieved by bankruptcy.

Offering financial independence by forgiving unsecured loans is the point of bankruptcy. Secured loans, on the other hand, are prior commitments that you continue to repay regardless of your economic standing:

  • Unsecured Debt: Forms of lending like credit cards where the borrower has no leverage, such as a vehicle or house, to come after the belongings.
  • Secured Debt: Loan forms (car loans, home loans, etc.) where you not only promise to make payments but if you neglect to make payments, the creditors can come after your money.

In the case of a claim, a secured lender can take your property and sell it to pay for the loan. If you choose to sell the property that acts as security for the loan, filing for bankruptcy does not rid you of guaranteed debts.

Therefore, only if an individual can still afford to make the regular contributions on the mortgage, those affected by bankruptcy can retain their home and car.

Chapter 7 vs. Chapter 13 bankruptcy

For persons, there are two forms of bankruptcy: Chapter 7 bankruptcy, and Chapter 13 bankruptcy

Chapter 7 Bankruptcy: liquidation of assets that clears out as much unsecured debt as possible without the need for a recovery agreement to settle it.

Chapter 13 Bankruptcy: Often referred to as the scheme of a salary earner. This encourages the person with a stable salary to establish a plan for repaying all or half of their debts. A repayment scheme for over 3 to 5 years includes Chapter 13 bankruptcy.

If you are present on the debt payments before you apply for bankruptcy, and the state statutes support the bankruptcy exception, Chapter 7 bankruptcy allows you to retain the house. There is a fair risk that if you are behind on mortgage payments, you will lose your house.

Meanwhile, if you are behind, chapter 13 bankruptcy can include a grace period to catch up on mortgage payments. You will save your house if you can make an understanding with the courts over a rehabilitation package.

With respect to your car, whether you are present with payments, most chapter 7 situations encourage you to retain the vehicle. The same goes for conditions in chapter 13, even though you might be late on loan payments. In both cases, after all, expect the lender to have a closer eye and the potential to have to renew the debt with a new agreement.

Can I file for bankruptcy and keep my car and house?

It varies on the bankruptcy chapter, the condition of the loans for the house and car, and the current financial position. Both forms of insolvency make maintaining a car better than maintaining a house. However, you’ll have an easier time protecting your house if you’re up to date with your mortgage payments.

Regardless, by committing to their terms, you also need to show your loyalty to home and car lenders. For your recovery strategy, Chapter 13 bankruptcy needs court permission, while Chapter 7 is based on your prior experience with the mortgage lender.


Author Photo

Blake Goodman received his law degree from George Washington University in Washington, D.C. in 1989 and has been exclusively practicing bankruptcy-related law in Texas, New Mexico, and Hawaii ever since. In the past, Attorney Goodman also worked as a Certified Public Accountant, receiving his license form the State of Maryland in 1988.

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