What Happens to Secured Debts in New York Bankruptcy
When considering bankruptcy in New York, understanding how secured debts are treated is crucial for anyone navigating this complex financial process. Secured debts are obligations that are backed by collateral, such as a home or a car. In the event of bankruptcy, different rules apply compared to unsecured debts like credit cards or medical bills.
In New York, there are two primary types of bankruptcy that individuals can file: Chapter 7 and Chapter 13. Each has its own implications for secured debts.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, allows individuals to discharge most of their unsecured debts. However, secured debts remain intact unless specific actions are taken. If you owe money on a secured debt such as a mortgage or auto loan, you have a few choices:
- Reaffirmation: You can choose to reaffirm the debt, which means you agree to continue making payments and keep the asset. Reaffirmation can be beneficial if you want to retain the collateral.
- Surrendering the Collateral: If you can no longer afford the payments or don't wish to keep the asset, you can surrender it to the creditor. This action will relieve you of the debt obligation, but you'll lose the secured property.
- Redemption: In some cases, you may redeem the secured asset by paying its current market value in a lump sum, even if that amount is less than what you owe.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is designed for individuals with regular income and allows for the reorganization of debts. One of the standout features of Chapter 13 is the ability to keep secured property while restructuring the debt. Here’s how it works:
- Repayment Plan: You will develop a repayment plan that outlines how secured debts will be paid over a period of three to five years. During this time, you may be able to negotiate better terms on your loans.
- Protection from Foreclosure: Filing for Chapter 13 provides an automatic stay, preventing creditors from pursuing foreclosure or repossession actions while you follow your repayment plan.
- Modification of Secured Debts: In Chapter 13, it is sometimes possible to modify the terms of your secured debts, potentially lowering your monthly payments or adjusting interest rates.
Impact on Credit
Regardless of the chapter filed, both Chapter 7 and Chapter 13 bankruptcies will affect your credit score. While secured debts may be managed differently, the bankruptcy filing itself will remain on your credit report for several years, impacting your ability to qualify for new credit.
Conclusion
Navigating secured debts in New York bankruptcy can be complex and varies depending on the chapter filed. It is essential to evaluate your financial situation and consider seeking advice from a qualified bankruptcy attorney to make informed decisions that align with your financial goals.