Does Bankruptcy Cover Secured Debt?

Bankruptcy is an opportunity for a fresh financial start, so if you’ve taken out a secured loan you might be wondering what happens to that debt.

Secured debts are covered by personal bankruptcy, but you will lose the assets and securities that were used to back the loan. For this reason, it’s important to thoroughly consider the implications of bankruptcy and secured debt, as you could lose high-value assets such as your home.

In this article, the team at Irwin Insolvency explains everything you need to know about bankruptcy and secured debt.

What Is a Secured Debt?

A secured debt is a type of debt that’s backed up by some form of asset. A secured debt is designed to provide the lender with added protection, and in the event of a default, the loan is secured by collateral.

There are many types of secured debts, but the most common example is a mortgage. The bank will offer you a loan to purchase a property, but if you default on repayments, they may take your home away to cover the unpaid debts.

Other examples of secured debts included:

  • Secured credit cards
  • Secured car loans
  • Mortgages and second mortgages
  • Secured personal loans
  • Secured business loans

Bankruptcy and Secured Debt

So what happens to secured debts if you declare bankruptcy? If you fail to keep up with payments on the secured debt due to bankruptcy, then the lender is likely to repossess the securities that were put up for the loan.

If you fail to pay your mortgage because you have become bankrupt, the bank may repossess your home and sell it in order to recoup the money you borrowed. If you take out a purchase agreement on a car and default on the payments, the lender may repossess the vehicle. The same applies to all types of secured debts, and bankruptcy can result in you losing any assets that were put forward as security.

If you manage to keep up with payments on your secured debts but are still forced to declare bankruptcy, then your assets may be seized and sold to pay other creditors. This means that you could lose the assets that were used to secure a loan, but you would still be liable for the debt.

After 12 months you are discharged from your bankruptcy. At this point, many of your debts that remain unpaid will be wiped out. This would include any secured loans that you’ve failed to repay and, once cleared, you have the fresh financial start you need to start over.

Contact Irwin Insolvency Today to Find Out More About Bankruptcy and Secured Debt

Declaring bankruptcy offers you the chance to clear secured debts, but it’s very likely that you will also lose any high-value assets, such as your home or car.

Bankruptcy and secured debt is a complex matter, so it’s important that you seek impartial insolvency advice before taking any action.

Contact Irwin Insolvency today for more information.


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0800 254 5122

About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.