In a Chapter 7 bankruptcy case, the debtor's financial obligations are divided into categories. One of these categories is called secured debt.
What all of these examples have in common is that they involve the concept of security, also known as “collateral.” Collateral is something the creditor can seize and sell if you miss payments. In a secured transaction (unlike a medical bill or an ordinary credit card purchase) the purchaser (you) has signed a contract to buy something, but the contract goes further than a simple promise to make payments on time. Rather, the secured contract provides that if the purchaser fails to pay on time, the lender or seller may seize the item being purchased and forcibly sell it off which will raise some money to help pay down the loan. In these situations, the purchaser is said to have offered security (also known as “collateral”) to back up the loan. These contracts are referred to as secured debts or secured loans.
In a Chapter 7 filing, the debtor has to make a decision about each secured loan. For each secured loan, the debtor must choose one of the following three alternatives:
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Once you have decided on what action to take for your collateral, the next step is to file a document called the Debtor’s Statement of Intentions with the bankruptcy court. The Statement of Intentions lists each secured debt and states whether the debtor intends to reaffirm the debt, surrender the collateral, or redeem the collateral. There is a deadline for the filing of the Debtor's Statement of Intentions, and that is the earlier of the following two dates: the date set for the Meeting of Creditors, or 30 days after the bankruptcy Petition was originally filed with the bankruptcy court. In common practice, lawyers file the Statement of Intentions at the same time the Petition is filed, so there is hardly ever a complete failure to file the Statement of Intentions on time when the debtor is represented by counsel.
Once the debtor files his Statement of Intentions on time, he must act on that stated intention. The deadline to act is 30 days after the date for creditors' meeting. If the collateral is real estate, then there is no automatic penalty.
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