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General Topics
Bankruptcy is Alive and Well. DON'T BELIEVE THE HYPE!
Chapter 7, specifically
Chapter 13, specifically
What is bankruptcy
Are there alternatives
Am I eligible
Can I keep property
How to decide
Does my spouse have to file
How long does it take
What will it cost
What will bankruptcy stop
Should I tell my creditors
What about my home
Should I load up on debt
Can I include utilities
Include all debts & property
What happens at the hearing
I have a business
Secured creditors
Are bankruptcies reported
Are employers notified
Can I cancel my bankruptcy
Types of bankruptcies
Do I attend a hearing
What should I do
What will it cost?

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What happens to items used as collateral for a loan?

A. If at the time you took out a loan from a creditor, you signed an agreement with that creditor pledging certain items of your property as security for that loan, that creditor has a security interest in that property, which is known as the secured property or the collateral for that loan. For example, your car is generally collateral for your car loan, and you may have pledged your stereo or household goods as collateral for a loan with a finance company such as ITT or Beneficial. Similarly, for some store charge cards such as Best Buy, the merchandise purchased from that store may be security for the amount owed on that store charge account. While bankruptcy generally discharges the debt owed to a creditor, bankruptcy generally cannot void that creditors valid security interest on the collateral. That means that the creditor continues to have a lien on and can eventually repossess its secured property unless other arrangements are made. 

If the bankruptcy trustee has no interest in liquidating the security held by the creditor(s),  what happens with the collateral is chiefly between you and the creditor. 

(See the following question for the exception.) In a Chapter 7 bankruptcy, secured property (collateral for a debt) is handled in one of the following ways:

1) The property is given back to the creditor; 

2) Arrangements are made to continue to pay the creditor in order to keep the secured property (as is often done on car loans); 

3) The debt is formally reaffirmed in writing, which legally obligates you to continue to make payments on that debt; or; Arrangements are made to buy the secured property from the creditor for the present value of that secured property. In a Chapter 12 or Chapter 13 bankruptcy, arrangements for buying back the secured property from the creditor or surrendering property to a secured creditor may be an integral part of the bankruptcy. This often allows you to buy back secured property from the secured creditor for the value of that property (with interest), with the payments for that property to be made to the Chapter 13 Trustee over 36-60 months. 

On other secured debts (like your house), you may simply continue to make the normal monthly payments. Can I continue to pay some of my creditors even after a Chapter 7 bankruptcy? If you wish, you can make voluntary payments on debts discharged in bankruptcy, but creditors cannot require any additional payments on discharged debts unless you formally reaffirm the debt in writing.