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One of the most common questions I get is: Do I have to list my mortgage or car loan in my bankruptcy if I want to keep my house and my car?

The short answer:  Yes.  ALL debts must be listed in your bankruptcy, even debts for things you want to keep like cars or houses, even debts that are not dischargeable like student loans, even debts you might want to voluntarily pay back after your bankruptcy like a loan to a family member or friend.  Everything must get listed.

So what does that mean for your car or mortgage?

The bankruptcy court separates secured loans into two parts:  the note and the lien.  Your personal liability for the note is discharged in the bankruptcy for these loans, but don't get too excited.  If you want to keep the car or house (or furniture or other collateral for a loan), you have to continue to make voluntary payments.  That is because the lien remains on the collateral, so if you stop making voluntary payments, the car or house can be taken by repo or foreclosure etc.

If you decided at a later date to walk away from the car or house, you could, and the bank would not be able to come after you for the "deficiency" - the difference between what you owed and what the collateral (car or house) was sold for.  One of the downsides of this is that the bank will no longer report your on-time payments to the credit bureaus.  This is because they cannot report your late payments since you are technically making a voluntary payment, so they can't penalize you for not paying a debt you really aren't required to pay.  Also, most secured creditors don't allow you to pay online anymore once you file, even if you want to keep the loan and make voluntary payments, and your statements are not always updated with payments.  This is because secured creditors don't want to be seen as violating the automatic stay by attempting to collect a discharged debt.  If you have an automatic withdrawal set up, that will also almost always stop and you will need to send in a check, or some creditors let you pay online.  Note that these rules are rules creditors follow because they think they have to in order to comply with the bankruptcy court's automatic stay. A violation of the automatic stay is a big deal and a creditor can be fined thousands of dollars for willful and repeated violations.

While your bankruptcy is open some secured creditors won't even talk to you on the phone to discuss your case without a release from me.  If you want me to prepare a release I need the following from you:

1.  Name of Creditor

2.  Your Account Number

3.  Propeprty Address or Make/Model of Car or description of other collateral

4.  Fax number or email for the creditor so I can send them the release.

Exceptions to this Rule:

**  In a Chapter 13 this is a little more complicated if your Plan says you are paying your mortgage or car.  The debt is STILL discharged, but if you walk away from it after the bankruptcy has been filed without modifying your plan (and you can't modify your plan once your Chapter 13 is over) you could end up having it show on your credit report.  Also, a Chapter 13 can sometimes get rid of liens or reduce them AND also get rid of or reduce personal liability.  For example we can strip a second mortgage, or cram down a car loan.  So we get rid of the personal liability AND the lien in a Chapter 13 in some instances.

**  If you sign a reaffirmation agreement in a Chapter 7, you are STILL personally liable for a debt.  See our page about Reaffirmation Agreements for more information.