What is a "secured debt?" and who is a secured creditor?

Usually, a debt is secured and hence the lender has a "security interest" and is a "secured creditor" if the creditor lent you all or part of the purchase price of the asset and reserved a "security interest" in it. The latter is referred to as a "purchase money security interest" and a creditor who has one is highly favored among creditors in a bankruptcy proceeding. There are other types
of security interest but, for the sake of brevity, only the most common is discussed here.

A purchase money security interest gives the seller/lender the right to repossess the asset if you fail to make the required payment. A secured debt is most commonly a home mortgage or a car loan, but might be any asset against which money may be borrowed. Whether you have filed a Chapter 7 or a Chapter 13, if you wish to keep property that you financed to purchase, you must continue to make the current payments (as distinguished from arrears) on any such debts. If you fail to make payments as they come due on these assets, the lender may ask the bankruptcy court for permission to repossess your car or foreclose on your home, as the case may be.

It is therefore imperative that you continue to make these payments, and to make them on time. If you are behind on your mortgage payments, for instance, or your car payments, and you have filed a Chapter 13, the amount that you are behind can be repaid in the Chapter 13 bankruptcy payment plan. One of the most
common uses of a Chapter 13 bankruptcy is to stop a foreclosure and provide the borrower (that's you) an opportunity to create and implement a repayment plan. The end result in an ordinary case, if the plan is performed by you, is that you keep your house or car or both, you make your current mortgage / car payments, and you will have paid the arrears off in thirty-six months as part and parcel of your repayment plan. In a Chapter 7, you may choose to simply surrender the property, sometimes referred to by the lender as "collateral", to the lender. As with most rules, there are exceptions. Not all security interests are absolutely enforceable by the lender in a bankruptcy proceeding. Call our office for a consultation to discuss further details.