What Does it Mean to Pledge Your Property as Collateral?
Getting a loan from the bank or another lender can be challenging, and securing the loan with a pledge of collateral might make things easier. Unfortunately, your property pledged as collateral might be seized if you default on loan payments.
When you pledge property or assets as collateral, you are offering your property as a way of securing a loan. Ideally, you should repay the loan, and your collateral will remain in your possession. If you default on the loan, the lender can seize the collateral to pay your debt. If you are having trouble keeping up with loan payments, filing for Chapter 13 bankruptcy might help prevent the lender from seizing your collateral assets. Simply having the loan discharged might not prevent you from losing your collateral. Talk to a bankruptcy lawyer if you are afraid of losing collateral property.
To schedule a free review of your financial situation, call Young, Marr, Mallis & Associates at (215) 701-6519 and speak with our Philadelphia bankruptcy attorneys.
What Happens When You Pledge Property or Assets as Collateral?
Some people have trouble getting approved for a loan for a variety of reasons. To make the process a bit easier, you have the option of pledging collateral. Pleading collateral involves offering some property or assets to the lender. The collateral should be valuable enough to help pay a significant portion of your loan back if you default.
Many people pledge something as collateral because it assures the lender that they will get their money back one or another, and borrowers are often given better interest rates. A loan obtained using collateral is referred to as a secured loan. Ideally, you should be able to repay the loan over time, and any property you pledged as collateral will be released. If you default on the loan, the lender may seize the property pledged as collateral and use it to cover your debts. In such a case, you would lose your property.
Generally, borrowers retain control over the pledged property. For example, if you pledge your house as collateral, you can still live in the house and continue paying the mortgage. However, if the lender seizes the collateral property after you default, you would have to vacate the home.
Will I Lose Assets or Property I Pledged as Collateral?
As described above, you might lose the property you pledged as collateral. However, the lender cannot take the collateral until the borrower defaults. The lender cannot seize the property at any time they want. This is important to understand, as missing a single payment might not automatically put you in default. If your lender is making moves to seize the collateral before they are legally allowed, get in touch with a lawyer immediately.
If you are having trouble keeping up with the loan payments but do not wish to go through the bankruptcy process, you might be able to elect to let go of the collateral property. If you surrender the collateral, it will become the property of the lender, and they will use it to fulfill your debt. Depending on what kind of property was pledged as collateral, this might be a viable option for some people.
How to Prevent the Loss of Property Pledged as Collateral
Secured debt involving pledged assets or property may be discharged through bankruptcy, and you would no longer be liable for repayment. However, if a secured debt is discharged, you do not get to retain any assets or property you pledged toward it.
This creates a tricky situation for borrowers who cannot afford to repay debts but want to retain the property they pledged as collateral. This is incredibly frustrating for people who might have pledged their home as collateral, as they might have nowhere to live after bankruptcy proceedings are complete.
Filing for Chapter 13 bankruptcy might be the solution you are looking for. Rather than liquidating assets to pay debts and discharging secured loans, Chapter 13 allows you to set up a payment plan. Chapter 13 filers tend to be on payment plans for several years, but the plan might allow you to repay your secured loans instead of discharging them. This way, you get to keep your pledged assets.
What Do I Do if I Cannot Repay My Loan Involving Pledged Collateral?
If you do not believe you can keep up with your loan payments and default is imminent, call a lawyer as soon as possible. Our Pennsylvania bankruptcy attorneys can review your financial situation and help you figure out how to protect your assets and get out from under your debt.
One possibility is to look at your other properties or assets, if any, and decide if you would rather liquidate one of them to avoid losing the property you pledged as collateral. For example, perhaps you placed your home as collateral for a loan to start a business, but you are having difficulty keeping up with loan payments. Rather than lose your home as collateral, you might liquidate an investment property you were sitting on or a vacation home if you have one. Doing so would allow you to pay your loan back and keep your home.
If you do not have other assets to liquidate, as many people do not, filing for Chapter 13 bankruptcy might be a good option. While bankruptcy is a bit of a dark mark on your credit, it can help you in the long run. Chapter 13, as mentioned above, focuses on restructuring your finances and developing an aggressive yet feasible payment plan. Our team can help you devise a plan that helps you pay off your secured loan in a few years, so you keep the collateral you pledged.
Call Our Bankruptcy Lawyers for Assistance Right Away
Call Young, Marr, Mallis & Associates at (215) 701-6519 and speak with our Bucks County bankruptcy attorneys to schedule a free review of your financial situation.