When Filing for Bankruptcy Are You Allowed to Keep Any Loans?
When you're looking for debt relief, bankruptcy is sometimes the only option. You can get rid of most or all of your debt either in a Chapter 7 or in a Chapter 13 case. Sometimes, however, you may want to keep certain loans, such as your mortgage or your car payment, and the Bankruptcy Code allows you to do so if the expenses are reasonable and you can afford them.
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Bankruptcy Discharge
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Consumer bankruptcy discharges the debtor's personal liability on unsecured debts. The debt itself continues to exist, but if you file bankruptcy, you are no longer legally obligated to repay the debt. Unsecured debts include debts that are not backed by collateral, such as credit cards, personal loans and medical bills. Unsecured debts also include mortgages and car loans if you surrender the house or the car back to the lender.
Secured Debts in Bankruptcy
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A secured debt is a debt backed by collateral. Mortgages and car notes are common types of secured debts. In exchange for the loan, you give the lender a security interest in the property you're buying with the loan. That means if you don't pay, the lender can take the property from you and sell it at auction to satisfy the debt. If you have secured debts in bankruptcy, you can choose to either keep the property and repay the debt or surrender the property and discharge the debt.
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Nondischargeable Debts
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Unsecured debts are generally dischargeable in bankruptcy. Certain unsecured debts, however, are nondischargeable, including student loans, child support, alimony and certain income taxes. If you have a nondischargeable debt, you must pay it back despite the fact that you filed bankruptcy. For example, if you have $80,000 in credit card debt and $40,000 in student loan debt, the bankruptcy will wipe out your obligation to repay the $80,000, but unless you can prove extreme hardship, you're stuck with the student loans.
Voluntary Repayment
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If you file a Chapter 7 case, you must tell the court what you intend to do with any secured debts. You must decide if you want to keep your house or your car, and if you can afford it, you must indicate on your Statement of Intention that you intend to repay the debt. If you want to discharge the debts, you must give up the property. If you want to repay unsecured debts, you can do so after your case closes, but the court will generally not let you enter into a formal repayment arrangement for dischargeable debts.
If you file a Chapter 13 case and finish with a discharge, you can also voluntarily repay any debts you didn't pay through the case once the case is over.
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