This is a question that comes up all the time. Depending on the collateral, you may be able to keep some or most of the items that you put up for the loan. The section of the Bankruptcy Law that deals with this issue is 11 U.S.C. § 522(f)(1). It states that you may be able to keep household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musicial instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. It is required that any of these items be a non-possessory, non-purchase money security interest that you gave to the creditor at the time of the loan. In other words, you put up stuff that you already owned for the loan and the loan company did not finance the purchase of these items. There are restrictions that further state that household goods means clothing, furniture, appliances, 1 radio, 1 TV, 1 VCR, linens, china, crockery, kitchenware, educational materials for minor children, medical equipment and supplies, furniture exclusively for the use of minor children or elderly or disabled dependents of the debtor, 1 personal computer and related equipment. This means if you had 2 TV’s put up for the loan, you would only be able to keep one of the televisions without paying for it.
The way these issues are handled is by the filing of a Motion to Avoid the lien that the creditor has on these items. It is very important that you bring to the attorney a complete list of the items you put up for collateral and the related paperwork showing the loan contract. In most cases, you will be able to keep everyday household items but sometimes you may have put up something that is not avoidable and we can usually work out an agreement with the creditor for you to keep the items for a much lower monthly payment than you now have. Of course if you do not wish to keep the items any longer, the bankruptcy law allows you to surrender the items to the creditor and get rid of the debt on the loan.
So, it is generally very easy to deal with these type of loans in a way that will help you out financially and you may be able to keep all of the property and still discharge the debt.