Thursday, December 22, 2011

5 Common Misconceptions about Bankruptcy: #2 How do I get a Free House?

Unlike other legal issues, unmanageable financial debt is a problem that many are too ashamed to discuss with their friends and family. This means that many people piece together their knowledge about bankruptcy from unreliable and confusing sources. The result is that there are a lot of misconceptions about bankruptcy.  In these 5 posts we will write about the most common misconceptions that we hear from clients in our office.

Common Misconception #2: How do I get a Free House?

In our last post, we discussed the misconception that bankruptcy discharges all debts.  There are some debts that you might still owe even after filing bankruptcy.

In addition, there are some debts which you can choose whether to still owe or not: Secured Debt.  Secured Debt is debt that you have agreed to pledge some collateral for, and in the event you don't pay the debt then the creditor can take the collateral.  Some common examples of secured debt are house mortgages or car loans.

In most cases secured debt can be discharged or kept, depending on whether you want to keep the collateral.  However, you cannot keep the collateral and discharge the debt.  There are no free houses and cars in bankruptcy.  Although you may have exempt equity in a car or house, if you cannot pay the loan you do not get to keep the collateral.

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