What happens to secured obligations?
Minneapolis Bankruptcy attorney Steven Silton explains what happens to secured obligations under chapter 7 and chapter 11 bankruptcy.
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Phone: (612) 260-9003
Secured obligations under a Chapter 7 or a Chapter 11 liquidation, the secure creditor will receive the collateral back unless the value in the collateral is more than the value of the claim, in which case the Chapter 7 trustee or the Chapter 11 debtor in possession has the right to sell the collateral, pay back the full amount of the claim, and disperse the overage pro rata to all the creditors.
In a Chapter 11 reorganization, if the value of the collateral is less than the value of the claim, the creditor can receive the collateral back pursuant to relief from the automatic stay, or the debtor has the right to decrease the value of the claim to the real value of the collateral. If the value of the collateral is more than the value of the claim, the debtor has the right to retain that collateral as long as they affirm the obligation and continue to make payments to that creditor pursuant to their contractual obligation.