What Happens to Secured Homeowner Loans in Bankruptcy?

Secured loans are normally not included in a bankruptcy. This is because the Courts will normally consider them ‘priority debts’ and will make allowances for their payment. Only unsecured loans and credit card debt can normally be included in a bankruptcy order

However, secured homeowner loans would normally be repaid in the event of bankruptcy. This is because the property they are secured on would ordinarily be sold in order to repay your debts.

In bankruptcy, all your assets form part of your estate. Your estate is deal with by the ‘trustee in bankruptcy’ who decides what to do with your assets in order to clear the debts that you owe. Your home (and other assets such as shares, cars, investments and other valuables) are likely to be sold in order to raise money to repay your creditors.

Whoever is appointed to deal with your bankruptcy becomes responsible for uncovering as much as possible about your assets and liabilities. They are also charged with maximising returns for the creditors from the assets available, within certain guidelines.

If your wife, husband or children are living with you, it may be possible for the property sale to be put off until after the end of the first year of your personal bankruptcy. This gives time for other housing arrangements to be made. In this instance, you would ordinarily have to continue to pay your mortgage and secured loan repayments.

It is also worth remembering that if you have a mortgage or secured loan on your property and you do not keep up your payments, your lender may be able to repossess and sell your home. Whilst the secured loans may not be included in your bankruptcy, failing to keep up the repayments may result in you losing your property. You should consider contacting your lender about your bankruptcy and your loan repayments.

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