The federal Bankruptcy Code provides many options for an individual to reorganize his finances. In some cases, a Chapter 7 debtor may decide that he can no longer afford to make the monthly payments on a secured loan. This may be a loan secured by real estate, a vehicle, or personal items. When the monthly payment is not affordable, the debtor should consider his options. These options may include restructuring the debt through Bankruptcy Code provisions such as re-writing the note in a reaffirmation agreement, lien-stripping, or redemption. The debtor may also consider using a non-bankruptcy option such as refinancing. Whatever the decision, the general rule in bankruptcy is that secured items must be paid for or returned to the secured creditor.
The best financial decision for the debtor may be to simply “walk away” from a secured debt. Surrendering property back to a creditor is not an easy decision, but in many cases it can be a very liberating experience. Surrendering property is usually as simple as coordinating a time between your attorney and the creditor, and then delivering the property. Once the creditor takes possession of the property, the debt is no longer secured and is discharged at the end of the Chapter 7 bankruptcy case. It is important to continue to safeguard the property and maintain insurance until the property transfer is completed.
The threat of surrendering the property can be a highly effective negotiating tool. In most cases the creditor doesn’t want the property, it wants the money. Taking property is a costly expense to the creditor and the threat of surrender may open the possibility for negotiating affordable terms during reaffirmation, redemption, or cram-down.
If you have secured property you can no longer afford to keep, consider surrendering the property during a Chapter 7 bankruptcy and “walking away” from the debt. Discuss your options with a Haines & Krieger attorney and learn how the federal Bankruptcy Code can help you restructure your finances. To set up a free consultation, call 702-880-5554.