Secured Debts: Cars, Mortgages, and Other Loans Backed by Collateral

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When dealing with secured debts like car loans and mortgages, understanding your options in bankruptcy is crucial. This blog post discusses how these debts are managed, the role of a bankruptcy attorney near you, and the potential decisions you can make to protect your financial future.

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Learn how secured debts like car loans and mortgages are handled in bankruptcy, and explore your options for reaffirmation, redemption, or surrender. Consult an experienced bankruptcy attorney near you to make informed decisions about your financial future.

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Flat vector illustration showing a person reviewing secured debts like mortgages and car loans with a bankruptcy attorney near them, with icons for a house, car, and electronics, and options to reaffirm, redeem, or surrender property, representing smart decision-making in bankruptcy.

Bankruptcy Law

Secured Debts: Cars, Mortgages, and Other Loans Backed by Collateral

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Managing Assets and Debts During Bankruptcy

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Mar 30, 2025 06:22 PM

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Secured Debts: Cars, Mortgages, and Other Loans Backed by Collateral

When filing for bankruptcy, not all debts are treated equally. Secured debts—like mortgages, car loans, or other loans tied to collateral—require special attention. Unlike unsecured debts (such as credit cards or medical bills), secured debts are backed by an asset the creditor can legally seize if payments stop.

In this post, we’ll explore how secured debts are handled in bankruptcy, your options for keeping or surrendering property, and how a bankruptcy attorney near you can help you make the right decision for your financial future.

💡 For every post in this series, scroll down to “Related Posts.”

What Is a Secured Debt?

A secured debt is a loan backed by specific property, known as collateral. If you don’t repay the debt, the lender has the right to take and sell the collateral to recover their money.

Common Types of Secured Debts:

Mortgages (secured by your home)

Car loans (secured by your vehicle)

Furniture or electronics loans (secured by the items themselves)

Secured personal loans (sometimes backed by savings or certificates of deposit)

What Happens to Secured Debts in Bankruptcy?

Chapter 7 Bankruptcy:

You must decide whether to reaffirm, redeem, or surrender the property:

Reaffirmation Agreement: You agree to keep paying the loan and keep the asset.
Redemption: You pay a lump sum equal to the property’s current market value.
Surrender: You return the property and are no longer liable for the loan.

Chapter 13 Bankruptcy:

You can catch up on missed payments over a 3–5 year repayment plan.

Some secured debts may be “crammed down” to the property’s actual value (e.g., if you owe more than your car is worth and meet eligibility criteria).

Can You Keep Your Car or House?

Yes, but only under certain conditions:

You must be current on payments or bring the account current through Chapter 13.

The property must be protected by exemptions in Chapter 7.

You may need to reaffirm the debt, meaning it won’t be discharged.

Your bankruptcy attorney near you will help assess whether it’s smart to keep the property—and whether it’s financially sustainable in the long run.

Reaffirmation Agreements: Proceed with Caution

Reaffirming a secured debt means you’re agreeing to be legally responsible for the loan even after bankruptcy. That can be risky:

If you fall behind after reaffirming, the lender can still repossess or foreclose, and you’ll be on the hook for the balance.

You must file the reaffirmation agreement before your case is discharged and get court approval.

What If You Surrender the Collateral?

Surrendering means you give the property back and the debt is discharged—you no longer owe anything. Many filers choose this route to:

Eliminate unaffordable payments

Walk away from upside-down loans (e.g., car worth less than loan balance)

Simplify their financial life post-bankruptcy

A bankruptcy lawyer near you can help you weigh whether surrender is smarter than keeping high-cost assets.

How Bankruptcy Affects Creditors’ Rights

Creditors can file a motion to lift the automatic stay if you stop paying on a secured loan and try to repossess or foreclose.

In Chapter 13, creditors are usually barred from seizing assets during your repayment plan.

Exemptions Matter Too

Your state or federal bankruptcy exemptions determine whether you can keep your secured property. If the value of the asset exceeds the exemption limit, the trustee may sell it and use the proceeds to repay creditors.

ReferU.AI Helps You Make Smart Decisions

ReferU.AI connects you with a bankruptcy attorney near you who understands the complexities of secured debts, exemptions, and repayment strategies. Our AI-powered platform finds top legal help to protect your home, car, and peace of mind.

Final Thought: Don’t Let a Loan Decide Your Future

Bankruptcy is your chance to reset—not to stay stuck in a bad deal. Whether you keep the asset, negotiate better terms, or surrender and walk away, the decision should be based on your goals, not fear. With the right guidance, you’ll make a choice that clears the way for your financial comeback.

Secured Debts: Cars, Mortgages, and Other Loans Backed by Collateral