Secured debt is debt that is incurred by a debtor, who grants an interest in real estate or personal property, typically when the debtor is purchasing property and obtaining a loan. In other words, the debtor provides the creditor with an interest in collateral. The best examples are a mortgage and automobile loan financing. Debt in connection with a house, includes a note and mortgage. The note is the document that reflects the amount borrowed and the required payments for the loan. The mortgage is the document reflecting the security interest in the home. In New Jersey, the mortgage document must be filed with the County Register of Deeds.
Debt in connection with automobile financing, includes a note and security agreement, which grants the finance company a secured interest in the vehicle. Typically, the finance company holds the title until the financing is satisfied. Also, the finance company must forward the title to the New Jersey Department of Motor Vehicles. There are other examples of security interest loans, such as a security interest with regard to the financing of furniture.
Purchase Money Security Interest
A purchase money security interest by law grants the financing company an interest in property, when the financing is used to purchase the personal property. An example of this may be purchasing furniture or an appliance.
In New Jersey, the law may grant an involuntary security interest to a creditor. An example of this type of security interest is the New Jersey automobile surcharge lien, condominium association lien, tax lien, etc. Also, a judgment lien may be considered a secured interest, when the judgment is filed with the Superior Court in Trenton. In this scenario, the lien only attaches to real estate that is owned by the debtor.
Secured Creditors in Chapter 7
Typically, a Chapter 7 case discharges secured debt. However, the discharge does not discharge or extinguish the creditor’s right to repossess or foreclose on the debtor’s real or personal property, if payments are not made. For example, if a debtor owes funds to a finance company in connection with their vehicle, the bankruptcy discharge eliminates the debt. This does not mean the debtor gets a free car.
Under this scenario, in virtually all circumstances, if a debtor does not sign a “Reaffirmation Agreement”, the finance company may not sue the debtor for the financing debt, if the debtor does not make payments, after the bankruptcy case is concluded. However, the finance company will repossess the auto, if no payments are made. The debtor must still be current with all finance payments if they want to keep the car.
Secured Creditors in Chapter 13
During the monthly plan, the debtor must pay the secured creditor, if the debtor wishes to keep the property. The payments to the secured creditor must be made to the creditor, pursuant to the contract with the creditor, or as modified by the bankruptcy plan. In other words, with regard to a mortgage payment, the debtor must keep current with their regular monthly mortgage payments, if they want to keep the house.
If the debtor is behind with their secured debt (mortgage) payments on the date of the bankruptcy filing, the debtor must pay the mortgage arrears through the bankruptcy plan, in addition to making the future monthly payments. A person can discharge and eliminate the secured debt (mortgage / auto financing), if they want to surrender the collateral (house / car).
With regard to an automobile, the debtor may pay the entire amount to the auto finance company through the bankruptcy plan. Under this scenario, the debtor would not be required to make any payment directly to the auto finance company.
Contact a Bankruptcy Lawyer in NJ
If you have questions about secured debt and you are considering filing for Chapter 7 or Chapter 13 bankruptcy, contact Robert Manchel, Esq., for advice. Robert Manchel, Esq, a NJ bankruptcy lawyer, has been guiding families and individuals through the bankruptcy process for 26 years. Call (866) 503-5655 today for a free consultation.