Our Bankruptcy Blog

Understanding Secured Debts in the Bankruptcy Process

Dealing with secured debts during bankruptcy is a critical issue that requires careful consideration and understanding. Secured debts are those for which the borrower has pledged some form of asset as collateral.

Common examples include mortgages on real estate and liens on vehicles. In the event of bankruptcy, the way these debts are handled can significantly impact an individual’s financial future.

This article aims to provide a comprehensive guide on how bankruptcy affects secured debts like mortgages and car loans, and explores the options for retaining or surrendering secured assets.


Understanding Secured Debts in the Context of Bankruptcy

Definition and Examples: Secured debts are obligations that are backed by collateral. If a debtor fails to make payments, the creditor has the right to seize the collateral to satisfy the debt. The most common types of secured debts are mortgages on homes and loans on vehicles.

Secured vs. Unsecured Debts: It’s crucial to differentiate secured debts from unsecured debts (like credit card debts and medical bills), as bankruptcy treats these types differently. Unsecured debts do not have any collateral attached and are often discharged in bankruptcy, whereas secured debts involve specific assets.


The Impact of Bankruptcy on Secured Debts

Automatic Stay: When you file for bankruptcy, an automatic stay immediately halts most collection actions against you and your property. This means foreclosure or repossession actions are temporarily paused.

Chapter 7 Bankruptcy and Secured Debts: In Chapter 7 bankruptcy, you can discharge most unsecured debts, but secured debts are handled differently. You generally have the options to surrender the asset, redeem it by paying its current value, or reaffirm the debt and continue making payments.

Chapter 13 Bankruptcy and Secured Debts: Chapter 13 bankruptcy allows for a reorganization of debts. You can keep your assets while making payments under a court-approved plan. This option may allow for more flexibility with secured debts, like reducing payments or interest rates.


Options for Dealing with Secured Debts in Bankruptcy

  1. Surrendering the Asset: If you can’t afford to keep up with payments, surrendering the asset might be a viable option. In this case, the secured debt may be discharged, and the creditor takes possession of the collateral.
  2. Reaffirmation Agreements: A reaffirmation agreement involves agreeing to continue paying the debt as if the bankruptcy had not occurred. This option keeps the asset with you but also retains the obligation to pay the debt, which won’t be discharged in bankruptcy.
  3. Redemption: Redemption is a less common option where you pay the creditor the current market value of the asset in a lump sum. This can be beneficial if the asset is worth less than the remaining debt.
  4. Cramdown in Chapter 13 Bankruptcy: A cramdown is where the court reduces the amount owed on a secured debt to match the current market value of the collateral. This option is typically available in Chapter 13 bankruptcies for certain types of debts.


Man in bankruptcy figuring retirement accounts


Factors to Consider When Choosing an Option

Financial Ability: Assess your financial situation post-bankruptcy. Can you afford the ongoing payments if you reaffirm the debt or enter into a Chapter 13 repayment plan?

Value of the Asset: Consider the current value of the collateral. If it’s significantly less than the debt owed, redemption or cramdown might make more sense.

Long-Term Financial Goals: Think about your long-term goals. If keeping your home is a priority, exploring options to retain it through bankruptcy is crucial.

Legal Advice: Always seek advice from a qualified bankruptcy attorney. They can help you navigate the complexities of bankruptcy laws and make informed decisions.


The Process of Dealing with Secured Debts in Bankruptcy

This process is pivotal in determining not just the immediate outcome of a bankruptcy filing, but also the long-term financial landscape for the individual filing for bankruptcy.

Here are the essential steps and considerations involved in managing secured debts during the bankruptcy process, providing a foundation for making informed decisions in this challenging financial journey.

  1. Evaluation: Begin by listing all your secured debts and the value of the corresponding collateral.
  2. Consultation with an Attorney: A bankruptcy attorney can help you understand your options and the consequences of each choice.
  3. Decision-Making: Decide whether to surrender the asset, reaffirm the debt, redeem the asset, or pursue a cramdown.
  4. Bankruptcy Filing: File for bankruptcy under the appropriate chapter.
  5. Implementation of Decision: Follow through with your chosen strategy, whether it’s surrendering the asset, signing a reaffirmation agreement, redeeming the asset, or adhering to a Chapter 13 repayment plan.


Rebuilding After Bankruptcy

Rebuilding your financial life after bankruptcy is a journey of resilience and strategic planning. Emerging from bankruptcy presents a unique opportunity to reset your financial standing and lay the groundwork for a more secure future.

This phase involves careful credit rebuilding, astute budget management, and a commitment to financial education. The process can be challenging, but it’s also a time of renewal, offering the chance to establish healthier financial habits and rebuild creditworthiness.

Credit Repair: After bankruptcy, focus on rebuilding your credit. This can be done through secured credit cards, small installment loans, and consistent, timely payments.

Budget Management: Develop a budget that allows you to live within your means and avoid future debt issues.

Financial Education: Seek resources or counseling on financial management to better handle finances post-bankruptcy.



Bankruptcy’s impact on secured debts is significant and varies depending on the type of bankruptcy filed and individual circumstances.

Whether it’s through Chapter 7 or Chapter 13 bankruptcy, understanding your options—surrender, reaffirmation, redemption, or cramdown—is essential. It’s equally important to consider your financial ability, the value of the asset, and long-term goals when making a decision.

With proper guidance and a strategic approach, dealing with secured debts in bankruptcy can lead to a more stable financial future.

This article provides a general guide, but each bankruptcy case is unique. Consulting with a knowledgeable bankruptcy attorney is crucial to navigate the process effectively and make decisions that best fit your financial situation.


Where Can I Find Help?

Dealing with bankruptcy doesn’t have to be a single-person job. The bankruptcy lawyers at Parker & DuFresne will help you determine the best course of action to help you get out from under your debt and move forward to a debt-free future.

Call today at 904-733-7766 for a free consultation, or click the button at the top of the page to schedule online.


Florida Bankruptcy Lawyers

Parker and DuFresne

Parker and DuFresne