What about the home or car you can no longer afford to keep? Can bankruptcy help you get rid of the legal obligation to pay those debts? Secured debts are loans on usually cars and houses that have been recorded with the government on the title to the item. Unsecured loans are not recorded. They are debts for which there is no property to place a lien on (a lien is the governmental record of shared ownership of an item because of a debt). Unsecured debts are usually credit cards and medical bills. If the credit card company tried to put a lien on every transaction they were involved in, they would not be able to offer their services at competitive rates, or their competitors would offer the same services without requiring you to agree to a lien (as they virtually all do now). When you file Chapter 7, all your unsecured debts are eliminated, and you owe nothing – unless… If your exemptions do not cover all your property, any property that is not protected by an exemption, will be sold by the court, and the money will be used to pay a portion of your debt to the unsecured creditors – if they file the appropriate paperwork.
What does all this have to do with that house or car you can’t afford? When you bought the house or car, because of the mortgage or lien, it was a secured debt. So how can you convert a secured debt into an unsecured debt in bankruptcy so the debt is discharged? Surrender it. Once the collateral is surrendered, the secured debt becomes unsecured, and it is discharged like any other medical bill or credit card, but remember – to convert a secured debt to an unsecured debt, you must surrender the collateral to the lien holder.