Anyone who files for Chapter 7 bankruptcy in New York will have to include a form called a Statement of Intention, which is used to provide the following information to your creditors, trustee, and the court:
- Which debts are secured by collateral (secured)
- How you plan to address your secured debts
Although the automatic stay in a Chapter 7 bankruptcy will prevent your creditors from suing you for the balance on a secured debt, it doesn’t prevent them from reclaiming the house, car, or other collateral. With a Chapter 13 filing, you can arrange to repay the debt over three to five years, but Chapter 7 is different: you must declare what you intend to do with the property.
Below is an overview of your available options.
Surrender the property
This is the most straightforward option. If you don’t need the car or you plan to leave the house and move into an apartment, then you can return the property to the creditor. It’s a simple yet effective exchange: the bank or lender gets the asset back, and your Chapter 7 discharge wipes out the obligation.
Reaffirm the debt
Reaffirming the debt means you agree to maintain responsibility for the debt, so it is not included in your discharge. If you really need to keep the property (for example, you don’t want to subject your children to a stressful move), then you can reach an agreement with the creditor. However, a judge will have to approve it before it takes effect.
Redeem the property
Redeeming the property means that you buy it back from the creditor. This is generally done in one of two ways: paying the replacement value of the asset or paying the outstanding balance, whichever is less.
Keep the property
In some cases, a creditor will allow you to keep the asset without having to redeem it or reaffirm the debt first, as long as you keep making payments. This option does not prevent them from seizing the property if you default.
Under the U.S. Bankruptcy Code, you must act on whichever intention you declare within 30 days of the date set for your 341 hearing (meeting of creditors). If you fail to do so, then the creditor is free to act on their right to take back the asset, although they cannot sue you or take other measures to collect the debt from you.
While the thought of relinquishing secured property is difficult, there can be times when it is the best option. In other cases, giving up your house or car can expose you and your family to extreme hardship. A New York bankruptcy attorney will give you the advice you need to make the right decision and act on it.
If you are considering filing for bankruptcy, then it is important to review your options with a qualified attorney. Jayson Lutzky is a Bronx, New York bankruptcy lawyer with over 36 years of legal experience. He offers free in-office initial consultations. Call 718-329-9500 to set up an appointment.