What Happens to Your Secured Debts in Tennessee Bankruptcy?

When facing financial hardship, understanding the implications of declaring bankruptcy in Tennessee is crucial, especially concerning secured debts. Secured debts are loans backed by collateral, which means the lender can reclaim the asset if the borrower fails to make payments. Common examples include auto loans and mortgages. In a bankruptcy proceeding, how these debts are treated can significantly impact your financial future.

In Tennessee, individuals typically file for either Chapter 7 or Chapter 13 bankruptcy. The treatment of secured debts differs depending on which chapter is filed.

Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, also known as liquidation bankruptcy, your non-exempt assets may be sold to pay off your debts. However, many assets can be exempt and protected under Tennessee law. Here’s how secured debts are handled:

1. **Reaffirmation**: If you wish to keep the asset attached to the secured debt, you may choose to reaffirm the debt. This means you agree to continue making payments, which allows you to retain the collateral, such as a car or house.

2. **Redemption**: This option allows you to buy the secured asset at its current market value, which can be lower than what you owe. This is a viable choice for individuals looking to keep significant assets while minimizing payments.

3. **Surrender**: If you decide that retaining the asset is not feasible, you may opt to surrender it. In this case, the lender will reclaim the property, and you will be released from the associated debt. This step may offer a fresh start as it clears that particular financial obligation.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, often referred to as a reorganization bankruptcy, allows individuals to create a repayment plan to pay back all or a portion of their debts over three to five years.

1. **Keep Your Assets**: In Chapter 13, you can often keep your secured debts and assets by including missed payments in your repayment plan. As long as you fulfill the terms of the plan, you can retain your collateral.

2. **Cramdown**: If the value of your property is less than the amount owed, you may be able to reduce the loan balance to the current market value of the asset. This process is known as a “cramdown,” which can significantly lower your overall debt burden.

3. **Modify Loan Terms**: Chapter 13 also allows you to negotiate new terms with lenders regarding interest rates and repayment periods, making it easier to manage your secured debt.

Conclusion

In Tennessee, the outcomes of your secured debts during bankruptcy depend on your chosen bankruptcy chapter and your financial strategy. Chapter 7 may lead to the liquidation of assets if you opt to surrender them, whereas Chapter 13 offers the potential to keep your assets with manageable repayment plans. It’s essential to consult with a knowledgeable bankruptcy attorney to navigate these options effectively and to understand the repercussions fully. Taking proactive steps can help you reclaim your financial stability while addressing your secured debt obligations.