How Your Secured Debts Are Treated
If you’ve pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses and automobiles. If you’re behind on your payments, the creditor can ask to have the automatic stay lifted in order to repossess or foreclose on the property. However, if you are current on your payments, you can keep the property and keep making payments as before — unless you have enough equity in the property to justify its sale by the trustee.
If a creditor has recorded a lien against your property without your consent (for example, because the creditor obtained a court judgment against you), that debt is also secured. You may be able to wipe out the lien in bankruptcy.
The Bankruptcy Discharge
At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except:
- debts that automatically survive bankruptcy, unless the court rules otherwise (for example, child support, some tax debts, student loans, and some debts incurred due to the intoxicated use of a motor vehicle), and
- debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud, larceny, embezzlement, or malicious acts).
Once you receive your bankruptcy discharge, you no longer legally owe your creditors for any discharged debts. You can resume your economic life without court supervision, except you must tell the court if you receive (or become eligible to receive) an inheritance, insurance proceeds, or proceeds from a divorce settlement within 180 days of the date you originally filed your papers.
You can start rebuilding your credit, but it will take around two years before you can get decent interest rates on major purchases involving a mortgage or car loan. You can’t file for Chapter 7 bankruptcy again for another eight years from the date of your filing.