secured Credit + discharge

[Needing Help]

State - AZ

Total debt - $400,000+ (most of which is an SBA loan on a failed business)

Met with an attorney today, who told me that since the SBA has my house as collateral, we could consider it "secured", thus keeping us under the $337K limit of unsecured, allowing us to file a chapter 13.

If that is the case, will that loan be discharged upon completion of the plan?

Very stressed. Please help.

Thanks!

[krielly]

Secured debt is NOT discharged. You will have to pay that back. Only unsecured can be discharged, or partially discharged if you are in a 13 and not at 100% payback.

[AboutToBK13]

Hmm, I thought things like 2nd's could be somehow made unsecured if "you" were upside down in the house. If that is true, would the SBA loan be similar to a second?

You really need to talk with a good BK lawyer regardless.

[HHM]

When it comes to secured debt...

1. Your "personal" obligation to pay back the debt IS discharged.
2. However, the "lien" on the property which secures the loan SURVIVES the BK.

There is a provision for lien stripes, but it is somewhat technical, and you have to file a Motion to do it. Lien stripes do not happen automatically as part of a BK. (do a search in this forum for Lien Stripes, or Lien Striping...I seem to recall we had a discussion on the subject not too long ago). I "think" that you might be able to strip the SBA loan if there is ZERO equity to secure that loan. But, you might be in catch 22, if you strip the lien, and that puts you over the limit for chapter 13 qualification, you will be put into a chapter 7 and your non-exempt assets WILL BE sold.

[Needing Help]

Thanks for the help. I talked to the attorney today, and he told me something like this (I am still a bit confused)

If the bank has a lien on my home (the business loan, not the mortgage), and we are willing to give up the home, we can file a 13 listing the note as "secured", and once we give up the home, they will have all access to any equity, but I WILL be discharged from the additional debt once the 13 is completed.

Has anyone done something like this before? Or given up any secured debt of any kind? What happened?

[HHM]

Right, if you surrender the home in the chapter 13, then there is not problem, the debt will be discharged.

The problem would arise if your intention was to keep the home.

[Needing Help]

Thank you very much for the confirmation. I am willing to give up the home, if it means I can make this catostrophically BAD decision to open up a business go away after the chapter 13.

In addition to the SBA note, I have a lease which is overdue, & vendors coming after me. If it weren't for this business, my life would be wonderful! Fortunately I have a full time job with steady income. Oh well...

When it's all said and done, I should have about $1,500 a month disposable (even after child support/alimony), so I hope the trustee will be satisfied!