In bankruptcy, you can make good on a secured debt by surrendering the property. Surrendering the property means that you notify the court of your intent to return the item to the creditor.
When you surrender the property, a few things happen. Surrendering property means that the creditor no longer has a lien against you for the item, and the debt is wiped out. This is an easy way to make good on a bankruptcy debt if the item is something you don’t need anymore, like a boat, additional vehicle or RV, if you just can’t afford the item, or if you are upside down on the loan for the item.
Unfortunately, in some courts, surrendering an item means going back to square one on the means test. If you had included loan payments for an item in your means test that you later chose to surrender, some courts go back and do the math on your means test again, this time without the loan payment figured in. For some people, this may mean that they no longer qualify for Chapter 7 bankruptcy.
Some credit unions employ a unique strategy to keep this simple exchange from taking place—it’s called the cross-collateral clause. It means that if you take out a loan for a secured item, like a car, then that security serves as collateral for every loan you have with that institution. So if you have a car loan and a credit card, then instead of agreeing to make car payments or agree to a lump sum for what you owe on the car in order to keep it, you would have to agree to make the car payment and pay off the credit card, too. Often this would be the case since many lenders require debtors to reaffirm vehicle loans during bankruptcy or give up the vehicle. When you reaffirm a loan, you also give up the right to have it discharged in bankruptcy.
Over the past 33 years, the Law Offices of Christopher A. Benson has helped over 2,300 of Washington clients take control of their financial situation. We can stop your garnishment and change your monthly payments for all your combined unsecured debt, and if you have had more than $600 garnished within the last 90 days, we can get all of the money back in most cases. But you have to act quickly–call (253) 815-6940 for your free consultation, or email us today. Evening and weekend appointments available.
About the Author