Secured Debt

When I meet with an individual considering bankruptcy who has one or more car loans, I ask a number of questions. These questions provide an essential outline of car loans in bankruptcy.

Here in North Carolina, a car is typically essential transportation. Owning a car can be vital to continued employment. Lenders and car lots know this, and are very willing to loan money to buy a car. The catch, however, is a high, sometimes very high, interest rate. A high interest rate strains a household budget, and can prolong the debt burden beyond the serviceable life of the car. Bankruptcy offers tools for consumers to get out from the burden of crushing auto loan interest.

In many respects, second mortgages are treated the same as first mortgages in bankruptcy. The most important difference is that an unsecured second mortgage can be stripped off the property, when more debt is owed on the first mortgage than the property is worth.

Consumer secured lending is a commonplace part of many household budgets. Major purchases like homes and cars are almost always financed, while other consumer transactions, like the purchases of furniture, electronics, appliances, and HVAC equipment are sometimes financed. A lender will often seek to retain rights in collateral as additional assurance that the loan will be paid. Sometimes, a consumer will pledge property they already own as collateral to a new loan, such as a home equity line of credit. In the legal lingo, these are all "secured transactions" aiming to create secured debts.