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What Happens To Secured Debt In Bankruptcy

Can Student Loans Be Discharged Early

Secured Debts in Chapter 7 Bankruptcy OR “What will happen with my mortgage and car payment?”

While the seven-year rule applies in the vast majority of cases, a bankruptcy court will consider discharging student loan debt early in extreme cases. You can apply to the court for discharge from student loans in five years.

To qualify for the hardship provision, you must prove that you tried to repay your loans and made use of the assistance programs available. You must also show that even those programs still left behind a severe hardship for you for example, you cant repay your student debt and buy food or pay rent.

You Can Get A Lower Interest Rate

Since this interest in property gives the bank a level of security that the typical credit card company doesnât get, secured loans are often offered at lower interest rates than unsecured loans. Now, the bank or credit union will still want to see your credit report, but your credit history and credit score are less important than if youâre applying for an unsecured loan or credit card.

Secured Debts Key Questions

A debt secured by a mortgage on an asset, such as your house or car, will not be discharged by bankruptcy. However, bankruptcy and secured debts complicate each other. Three important questions are:

  • Are your payments on the mortgage up to date? If not, the mortgagor can foreclose regardless of whether you are bankrupt. Most mortgages have a standard clause, allowing the mortgagor to repossess the asset if you go bankrupt. However, especially in the case of a house, they dont often do this because it is more profitable for them to keep the mortgage going .Also, in the case of a house, are your payments on municipal taxes and utilities up to date? If not, the city or utility company can place a lien on the house, changing those debts from unsecured to secured.
  • How much equity do you have in the asset? For bankruptcy purposes, equity is the excess of what the asset is worth over what you would have to pay in case of selling it, including the mortgage balance, outstanding property taxes and utility bills, and legal and real estate fees to sell it. If the asset is worth less than what you would have to pay, you have negative equity.
  • Do you want to keep the asset?
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    Examples Of Secured Debt

    The two most common examples of secured debt are mortgages and auto loans. This is so because their inherent structure creates collateral. If an individual defaults on their mortgage payments, the bank can seize their home. Similarly, if an individual defaults on their car loan, the lender can seize their car. In both cases, the collateral will be sold to recoup the outstanding debt.

    For example, Mike takes out a $15,000 car loan from a bank. The loan is a secured debt because the car acts as the collateral that the bank can seize if Mike defaults on his loan repayments. After two years, there is still $10,000 left to pay on the loan, and Mike suddenly loses his job. He can no longer make the loan payments and so the bank seizes his car.

    If the current of the car is $10,000 or more, when the bank sells it and collects the proceeds, it will be able to cover the remaining debt. If the market value of the car is less than $10,000, say, $8,000, the bank will cover $8,000 of the outstanding debt but will still have $2,000 of the debt remaining. Depending on the situation, the bank can go after Mike for this remaining $2,000 in debt.

    What Does Having My Debts Discharged Mean

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    Your bankruptcy discharge is a legal document that legally and permanently eliminates your unsecured debts and means you dont have to pay on these debts any longer.

    A bankruptcy discharge gives you a fresh financial start.

    Receiving a discharge of your debts means you are released from the legal obligation to repay all of the debts listed in your bankruptcy.

    Certain debts cannot be discharged in bankruptcy, including secured debts, some unsecured debts, and debts you incurred during your bankruptcy.

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    Advantages Of Chapter 13

    Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.

    What Does Declaring Bankruptcy Do To Your Debt

    Most of your debt will go away. The most important thing that happens when you declare bankruptcy is that your unsecured debt goes away. Unfortunately, you still have to pay back any secured debt that you owe, but there are still options to ease this burden.

    Generally speaking, the most important thing to know about declaring bankruptcy is that it will get you out of most of your debt. Declaring bankruptcy also gives you a chance to start building credit again after the bankruptcy is discharged.

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    What Happens To My Credit Cards

    When you declare bankruptcy, you must surrender all of your credit cards, even those with a zero balance, to your trustee.

    Your Trustee will explain how you can handle bill payments and online purchases while you are bankrupt and without a credit card.

    We recommend that you apply for a secured credit card once you go bankrupt, as this will function like a normal credit card for online purchases and booking travel, but you must secure the card by depositing money with the card issuer, which allows you to use this card while going through bankruptcy.

    Before you go bankrupt do not use your credit card for major purchases, or this could be deemed fraud and the debt wont be eliminated.

    Making potentially fraudulent purchases on your credit card has another implication: if you decide to file for a consumer proposal, the credit card company will likely vote against accepting your consumer proposal.

    What Happens To Your Information

    What happens to secured debts when you are bankrupt e.g. My Car Loan or House?

    Any previous name included in the bankruptcy petition will appear on the bankruptcy order, and in the:

    • notice of your bankruptcy, which is permanently recorded in the Gazette but excluded from search engine results one year and three months after publication
    • Individual Insolvency Register which will be removed within three months of your discharge

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    How Does Bankruptcy Discharge Affect Your Credit Report

    Bankruptcy Discharge and Your Credit Report. A bankruptcy discharge does not impact the credit reporting time limit for bankruptcy, which is seven years from the date of filing for Chapter 13 bankruptcy and 10 years from the date of filing for Chapter 7 bankruptcy.

    A slightly broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7 case.

    What Happens To Your Credit Rating

    Initially, declaring bankruptcy is bad for your credit rating. It will stay on your report for several years, although the impact it has after the first two to three years will start to lessen. Your credit rating can be a little misleading after declaring bankruptcy, however. The negative information on your report is not always a true reflection of your ability to repay debt. The bankruptcy stays on your record, but it doesnt necessarily mean you are a bad credit risk.

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    How Long Does Bankruptcy Last

    Bankruptcy lasts approximately 9 months, provided that it is your first bankruptcy and you complete all of the duties assigned to you. Your bankruptcy may last up to 21 months if you have to pay surplus income, which is calculated according to standards established by the Office of the Superintendent of Bankruptcy Canada and coordinated by your trustee after examining your income, expenses, and dependents in your household.

    If it is your second bankruptcy, you will be bankrupt for 24 or 36 months. If you have been bankrupt more than once previously, have not complied with your duties, or have committed one or more bankruptcy offences, your bankruptcy timeline will be determined by the court.

    After you have received an Absolute Discharge from your bankruptcy, you will no longer be responsible for any of the discharged debts. However, the fact that you filed a bankruptcy will appear on your credit rating for 6 to 7 years, depending on the province you live in.

    What Happens With Secured Debt In Bankruptcy

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    When you file for bankruptcy, you must get in touch with the secured creditors to discuss your debt and determine if a solution is available. The bankruptcy wont change the right of the secured creditor. They would still be allowed to pursue you to make the payments and can seize the property if you cant maintain the payments.

    However, if you are unable to keep up your payments, the secured creditor can repossess the secured asset sell them to recover the loan payment.

    If selling the goods still doesnt cover your doubt, the remaining amount is known as shortfall, which can be listed in your bankruptcy. Once this shortfall is added to your bankruptcy, the creditor wont be able to further pursue you for the remainder of the debt.

    Once you enter bankruptcy, a trustee will be appointed to you to maintain the bankrupt estate. That trustee would be in charge of dealing with any unsecured assets and apply the sale proceeds to paying a dividend to the unsecured creditors equally.

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    What Happens To My Debts

    If you enter bankruptcy, you will find that most debts are covered. This means that you no longer have to repay them. In some cases, your trustee may sell your assets or use compulsory payments to help pay your debts.

    Read on to understand which debts bankruptcy covers and if you still need to pay certain types of debts.

    What Happens To Your Credit Rating After Discharge

    The official receiver wont tell the credit agencies when your bankruptcy ends. You may need to ask the credit agencies to update their records to include details of your discharge.

    The bankruptcy can stay on your record for 6 years after the date of the bankruptcy order.

    Read more on this in the Information Commissioners Office Credit explained document.

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    Records Against Property You Own

    To remove the record of your bankruptcy from the Land Charges Register you must do both these things:

    Bankruptcy entries are automatically removed from the Land Charges register after 5 years if theyre not renewed. Find out more about what happens when bankruptcy ends on GOV.UK.

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    What Happens To My Student Loan Debt

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    Student loans receive special treatment in a bankruptcy, because they are personal loans guaranteed by the government.

    While your student loans are technically dischargeable in bankruptcy, there are special rules relating to whether they can be discharged through bankruptcy.

    In order to include your student loans in your bankruptcy, you must have been out of school for at least 7 years.

    The law requires you to make every effort possible to pay off your student loans, although if you can prove hardship to repay these loans, you can discharge the student loans after only 5 years of being out of school.

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    What Happens To My Tax Debts

    While bankruptcy can deal with tax debts owed to the CRA, it is important you speak with a Licensed Insolvency Trustee before the CRA takes any action against you, such as placing a lien on your property.

    The CRA has powerful collection powers, and they often act quickly to collect on your unpaid tax debts.

    Bankruptcy Law Can Resolve Tax Debts

    Dealing with the CRA can be stressful when you have unpaid income taxes, source deductions, or HST installments. They have strong collection powers and can act quickly to collect on unpaid taxes.

    Bankruptcy law is federal legislation. As a result, both a bankruptcy and consumer proposal can successfully resolve outstanding tax debt.

    It is important, however, to contact a Licensed Insolvency Trustee before CRA has placed any lien on your property.

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    What Happens To The Debts

    When you file bankruptcy, you receive a stay of protection from creditors. Declaring bankruptcy means debt collectors can no longer pursue you to collect. Creditors can no longer garnish your wages or sue you in court. However, your debts are still there until your bankruptcy is completed.

    Once you successfully finish your bankruptcy, this is when your debts are released. Your creditors receive their share of any assets assigned in your bankruptcy and monies from your monthly bankruptcy payments, in exchange for which they agree to forgive the remainder of your debts. Your bankruptcy discharge is the final stage of this arrangement.

    However, you should know that not all debts are erased in bankruptcy.

    How does bankruptcy work when you have student loans? Or a mortgage? Or a mountain of credit card debt? Keep reading to learn more about how the bankruptcy process treats each type of debt.

    Who Can Be Made Bankrupt

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    A bankruptcy order can be made for one of three reasons:

    • you cant pay what you owe and want to declare yourself bankrupt
    • your creditors apply to make you bankrupt because you owe them £5000 or more
    • an insolvency practitioner makes you bankrupt because youve broken the terms of an individual voluntary arrangement

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    What Different Types Of Debt Is Dischargeable

    • Most credit card debt is dischargeable in bankruptcy. As long as you meet the filing income requirement, your personal promise to pay this money back goes away when you file Chapter 7 or 13 because it is unsecured debt. This includes late fees and any balances that are overdue.
    • Medical bills: Most forms of medical debt are dischargeable, but there is some grey area on this one. While you will almost certainly be able to get rid of the medical bills that have been sent to collections, you might not be able to automatically get rid of your responsibility for ongoing treatment.
    • Utility bills: Utility bills are generally dischargeable. This includes gas, electric, water, and phone bills.
    • Personal loans: Anything that you owe on a personal loan can be discharged in bankruptcy, including late fees and interest.

    What Are The Stages Of Insolvency Proceedings

    Lets say Company X has defaulted.

    What happens to it now?

    Well, there are two types of proceedings under IBC :

    • Insolvency proceedings

    Let us give you some context before we go into the details.

    In the first step, the entity will be tried and revived. If reviving the entity does not succeed, then step 2 will be implemented, which is, liquidating the entity.

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    Can You Receive A Discharge In A Chapter 13 Case

    You cannot receive a discharge in a Chapter 13 case if you received a discharge under a Chapter 7 case filed in the last four years or a Chapter 13 filed in the last two years. If didnt received a discharge in the previous bankruptcy filing, depending on why this is the case, you can file and receive a discharge without any time restrictions.

    Do I Have To Disclose All Debts In A Consumer Proposal Or Bankruptcy

    What Happens to My Car & House in Bankruptcy

    Why It Matters

    When a consumer proposal or bankruptcy starts there is immediate protection from the collection action of all unsecured creditors against the debtor. To get this protection, certain things have to be provided to the Licensed Insolvency Trustee so that necessary paperwork can be prepared, signed by the debtor and the LIT, and submitted to a government agency which starts the file.

    One of these items is a list of all known creditors, to the best of the debtors knowledge. This includes secured and unsecured creditors.

    What The LIT Does

    The LIT will prepare a statement of affairs which summarizes assets, creditors, and a description of the debtors personal situation. The statement of affairs will be sworn as true and complete by the debtor .

    Since a sworn statement is under oath all known creditors have to be listed.

    What Happens To My Secured Debts?

    The debtor is allowed to continue monthly payments to secured creditors in order to keep the asset held by the secured creditor as security such as their vehicle or residence, assuming they can afford to make these payments.

    What Happens To My Unsecured Debts?

    What Should I Do?

    For a review of your situation and assistance in determining which creditors are secured or unsecured and the types of debt dealt with by a proposal or bankruptcy, contact a LIT in your locality.

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