One of the most powerful tools available to you in Chapter 7 involves the right to surrender property and to literally walk away from the associated secured claim.
If, for example, you purchased a car or truck that you can no longer afford but cannot sell because the vehicle is worth less than what is owed, you can surrender that vehicle in bankruptcy. Upon surrender, the underlying claim of the creditor becomes unsecured and, just like credit card debts, medical bills and signature debt, it will be forever and legally eliminated when your Chapter 7 discharge is issued.
In a Chapter 7, the opposite of surrendering secured collateral would be to reaffirm the collateral. When you reaffirm a debt you are re-obligating yourself to pay for it. While you do have a short period of time to revoke your reaffirmation, it will become permanent at or shortly after your Chapter 7 discharge.
- If you choose to reaffirm debt, you should speak to your lawyer about negotiating for a lower payment, reduced interest rate and better terms. The secured creditor may say “no,” but there is no harm in asking.
If your stream of income is not steady or if you are struggling with your household budget, you would be wise to consider surrendering expensive secured collateral and reducing your monthly obligations. Obviously no one really wants to give up a house, car, furniture or jewelry, but if living without these expensive items can give you peace of mind and help you sleep better at night you should consider the advantage of surrendering collateral.
Finally, remember that if you surrender secured collateral that was co-signed by a friend or relative, the debt associated with that collateral will be eliminated as to you but not to your co-signer.
