Do you know what qualifies as secured property? It’s a property with a note or mortgage that has sufficient value so that it can serve as collateral for the note or mortgage. These types of properties can include single family homes, duplexes, row houses, farms, condominiums, vehicles, boats, and even furniture or appliances.

The concept of secured property is the principle that underlies all mortgages. If the debtor falls behind with their mortgage payments, the lender can foreclose on the property and sell it to recoup their investment. Cars, particularly newer cars, also count as secured property because the lender can seize the car if the car payments are not made in a timely manner. Of course, there are other types of property that can be used as collateral for loans and therefore qualify as secured property. These include tracts of land and commercial buildings.

On a smaller scale, secured property can also include things like rent-to-own furniture and furniture sold on installment plans. If the payments aren’t made as promised, the store can come and take back the furniture. However, rent-to-own furniture is at the very low end of secured property, and some might even debate whether it really qualifies–the expenses of repossession often outweigh the possible benefits to the lender. And this brings us to the other side of secured property: unsecured property.

Secured Property Versus Unsecured Property

As opposed to secured property, unsecured property is property that isn’t used to guarantee a debt. Examples include anything purchased with credit cards. Unless it’s diamonds bought at Tiffany & Co, or other such valuable items, credit card companies generally have little interest in the goods purchased with their cards. In fact, most of the things purchased on credit are consumables that are used up or significantly diminished in value by the buyer so that they no longer have sufficient value to be reclaimed by anyone.

Where Is the Term “Secured Property” Used

If you were to search for “secured property” on Google, you’ll discover that there is surprisingly little information available. And what little information there is focuses primarily on taxes, with even less on mortgages. You have to dig a little deeper to find references to secured property in a closely related area: bankruptcy. Of course, as bankruptcy is our thing, we’ll focus on the treatment of secured property in bankruptcy here.

Secured Property, Mortgages, And Bankruptcy

Mortgages are typically the most important form of secured property for most debtors. After all, homes, condos, and other residential structures are where we do our living, and they serve as the collateral for the mortgages that helped their owners move in.

Unfortunately, there’s also a dark side to mortgages: what if the homeowner can’t keep up with their payments? In that case, the lender has the right to seek to take back the property, potentially putting the owner and their family out on the streets. A foreclosure is the process whereby a lender places the home up for auction, selling it to the highest bidder in an auction to recoup their money. By hiring a bankruptcy attorney who is experienced with handling secured property, the homeowner can explore several options to avoid losing their house. As one option, they might be able to negotiate a solution that buys the owner more time to catch up on their payments. Alternatively, they might be able to renegotiate the mortgage. In these cases, the secured property stays in place and the owner stays in the home. If that doesn’t work, bankruptcy is another powerful option, either under chapter 13 or chapter 7.

Chapter 13 Bankruptcy

Mortgages play a big role when it comes to secured property and bankruptcy. If negotiations with the lender are not successful, the owner may have to resort to more drastic measures: either give up the home or file for chapter 13 bankruptcy. Filing for bankruptcy stops all foreclosure proceedings and allows the homeowner to pay off their debts, which includes the arrears of their mortgage payments, over time, generally over five years.

In fact, the amount of debt will probably be reduced quite a bit, in order to achieve a manageable amount for all the debts that the homeowner carries. Often, the bankruptcy fees and the legal fees will be part of those payments as well. And after five years of monthly payments, the debt will be paid off, including the mortgage arrears, while the regular mortgage payments continue throughout.

Chapter 7 Bankruptcy

If the homeowner is current with their mortgage payments, or can get caught up before filing, then a chapter 7 can serve as an alternative to chapter 13 bankruptcy. The homeowner has the option of surrendering secured property to the lender in a chapter 7 bankruptcy. However, most homeowners want to keep their house, and there are a couple of options to do so. One option is to reaffirm the underlying debt. This has the downside of re-obligating you for the full amount of the loan, with no ability to discharge that debt again for years. The upside is that making payments on a reaffirmed debt serves to immediately start rebuilding your credit after bankruptcy, which can be a huge benefit. The other alternative is to simply continue to pay the mortgage payments each month without reaffirming the debt. This has the advantage of keeping you off the hook for the debt, while keeping you in the house as long as you continue to make the payments. The downside is that your ongoing monthly payments do nothing to rebuild your credit.

With other types of personal property besides real estate, such as cars, furniture, jewelry, computers, and so forth, the debtor has different options. One option is to keep the property by “redeeming” it, which involves paying a lump sum for its current value. The second option is the same as with real property, where you reaffirm the original loan and continue making payments until it’s paid off. But, with personal property, it’s often just a better idea to surrender the property. Note that all debt owed on unsecured property is discharged in a chapter 7 bankruptcy.

Do You Have Questions About Secured Property?

If you have questions about secured property and face challenges with making your mortgage or tax payments, a bankruptcy attorney who has experience with secured property can help. We have that experience. Call us, send us a message, or chat with us online and request a free in-depth no obligation case evaluation. We look forward to talking with you.