How are secured creditors dealt with under chapter 13?
March 28, 2008
There are four methods of dealing with secured creditors under chapter 13:
- The creditor may accept the debtor’s proposed plan,
- The creditor may retain its lien and be paid the full amount of its secured claim under the plan,
- Debtor may surrender the collateral to the creditor, or
- The creditor may be paid or dealt with outside of the plan.
It is important to understand that a creditor has a secured claim only to the extent of the value of its security, which cannot exceed the value of the property securing the claim. Thus, a creditor with a mortgage on, say, a $1500 automobile, cannot have a secured claim for more than $1500 regardless of how much is owed to the creditor. If the debtor is in default to a secured creditor, the default must be cured (made current) within a reasonable time. Also, interest must be paid on secured claims.
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