(Schedule D) Effect of Sale/Destruction of a Secured Item

[Happy]

Hi,
Did a search and couldn't find anything directly answering the question.

Does anyone know the effect of either the sale or destruction of a consumer good (furniture/electronics) that has a purchase money security interest (perfected) against it? That is, is the item that was sold/destroyed still perfected? Do the creditors that lent for these items still need to be listed under Schedule D?

Thanks in advance!

[StartingOver08]

Do you have outstanding debt on the item in question? If so, list the creditor. If the debt has been sold from the OC, list both the OC and the CA. http://www.uscourts.gov/rules/BK_For...006D_1207f.pdf

Destruction of the item does not impact the debt. The debt lives on separately from the item itself. Look at vehicles for example; you have a car accident and the car is totaled. If your insurance does not cover the remaining balance of your vehicle loan, you are responsible for the difference.

PROTECT YOURSELF! List the debt in your schedules.

As a note, some creditors (Best Buy comes to mind) do try to bluff you into paying what is owed on the debt by requesting return of the collateral if you don't pay. The consensus here has been - ignore them. Search under "Best Buy" to read some good threads.

[Happy]

@StartingOver08 : Thanks for the quick reply!

That makes a lot of sense. I will list them on Schedule D.

Following up, how should I handle form B8 : CHAPTER 7 INDIVIDUAL DEBTOR'S STATEMENT OF INTENTION (Official Form 8)?

http://www.uscourts.gov/rules/BK_Forms_Pending_2008/B_008_1208.pdf

This form allows me the opportunity to Surrender, Retain, Redeem, Reaffirm or Other.

I'm guessing that when most of these threads speak of Best Buy / Dell coming after them, they are stating on these forms that they will Surrender the property, the companies threaten that it is secured, but then they never pick the property up.

What happens if they do come to get the property and it has been lost, destroyed, sold, etc? So, the present cash value comes from the estate + they have priority - or is it rendered non-dischargeable to the debtor?

[Happy]

N/M - just caught this gem from HHM in the General Bankruptcy Talk Forum.

No, generally, in the chapter 7 context, secured creditors are afforded no more priority than unsecured, mainly because, any claim of a secured creditor is first satisfied by selling the security (the asset, i.e. car etc.), then the claim of a secured creditor, the deficiency becomes a general unsecured debt.

If you want more info, Section 507 of the BK code sets out the priorities for claims.