Chapter 13 Bankruptcy and Secured Creditors

I received an email from a creditor asking when he could take back secured property from a debtor who file Chapter 13 when he has not received current payments. . Even if a creditor is secured by the Debtor’s property the secured creditor is prohibited by the bankruptcy stay from enforcing his security interest and taking the property. The debtor’s normal payments for secured debt is paid to the Chapter 13 trustee after the bankruptcy filing. It often takes a few months for the Trustee to disburse payments received to the secured creditors. That the Trustee is paying late does not mean the debtor is not making their payments on time to the Trustee. If the debtor is late in payments, the Trustee and the Bankruptcy Court will quickly dismiss the bankruptcy for non-payment in which event the stay will be lifted and the secured debtor can enforce their security interest.

A chapter 13 bankruptcy is not a bad thing for secured creditors. The bankruptcy trustee is enforcing payment collection on behalf of the secured creditors, and if the bankruptcy proceeds the secured creditor will get their payments. Neither a Chapter 13 or a Chapter 7 bankruptcy impairs the security rights of a secured creditor.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida