Alternatives To Bankruptcy For Dealing with Secured Debt Issues

Secured debts are those debts with an underlying agreement securing an asset, typically property, to a lending agreement. In the most common forms, home loans and auto loans are typically forms of secured debt. In these borrower and lender agreements, an individual will request a loan from a lending institution, who as part of the lending agreement, will require a given property to act as collateral in the event of default. In essence, if a borrower defaults on his or her loan agreement, the lender has the legal right to recover the property secured to the loan, and in certain cases, deficiency judgments as well.

Options for Secured Debt Settlement in Bankruptcy

Secured debt settlement, which involves ending or bringing current a loan agreement currently in default or facing default, is a process entirely different from that of settling unsecured debts. Under current bankruptcy laws, a debtor can obtain a discharge of most unsecured debts via bankruptcy, typically Chapter 7. However, secured debts are much more difficult to discharge during the bankruptcy process, and in the case of home and auto loans, will be exempt to state-specific exemptions laws and the exact nature of the original loan agreement, if the bankruptcy case involves filing Chapter 7. Chapter 13, which involves repayment of debts, does provide limited room for discharge of certain secured debts, but this only occurs three (3) to five (5) years into the Chapter 13 plan. In short, there are very limited options for dealing with secured debt in bankruptcy.

Alternatives to Bankruptcy When Dealing with Secured Debt

The first method to address secured loans in default or facing default will be through contacting a lender directly. As mentioned above, the vast majority of consumer secured debts derive from either home or car loans. A number of viable methods are in place, especially for home loans facing foreclosure, to retain the property securing a loan, while also keeping the loan in good standing. These methods, which will widely vary in availability from lender to lender, include:

• Forbearance periods

• Loan modification, which can lengthen the life of the loan, adjust interest rates, or make other modifications that will essentially make meeting payment obligations more feasible for the debtor

• Loan refinancing

The aforementioned methods still have a debtor obligated to the secured debt, but will allow the debtor to retain the underlying property securing the borrower agreement. On the other hand, a debtor most likely has the option to return the underlying property, while negotiating some form of "settlement" or pre-arranged agreement with a lender that will mitigate the losses of the borrower, as well as the future credit implications of defaulting on the loan. A final option is sale of the underlying property and repayment of part or all of an outstanding secured loan agreement.

Getting Legal Help with Secured Debt Issues

In reality, only legal counsel can offer competent advice concerning secured debt issues, which will entail a number of highly case-specific considerations that will greatly influence the potential number and type of settlement methods. Consult with a debt settlement lawyer to learn more about your options, your legal rights, and to take action to address outstanding secured debt and other debt issues.