Personal Loan - household items collaterol

[MelodyAM75]

My husband and I both have personal loans from the same company (Tower Loan of MS) and have household goods, musical instruments, video games, etc. listed as collaterol. I have not flied Chapter 13 yet, but I am working on getting the paperwork together for the lawyer now. What usually happens in order to get the loan companies to not attempt to repossess the property listed on the loan documents?

[jcj112562]

The long and short of it, if indeed the household items are collateral for a loan, then said loan is a secured debt, and if filing Ch13, you will pay each and every cent that you owe the creditor. They will not repo anything from you, but you will pay for it.

John

[MelodyAM75]

I have read about lien stripping for household goods from some sites. Does this not usually happen? Will they lower the loan amount to the actual value of the collaterat items?

[MSbklawyer]

When loans are secured by non-possessory non-purchase-money liens against exempt household goods, the liens can be avoided. This is similar to lien stripping, in principal, but you avoid the lien altogether and the debt is treated as unsecured.

Lenders take these items as collateral not because of any value they have, but because they know that you don't want to part with them and they can use the threat of repossession to coerce payment from you. Years ago, their practice was to take a non-possessory lien against the family pet until that practice was outlawed.

[MelodyAM75]

Met with the paralegal today and she said we could abandon collateral and that they didn't usually pay anything to loan companies like this and that the companies usually don't come for the collateral. Not sure what to think...

[FishersMike]

I am confused... if you abandon the collateral doesn't that mean you are giving it back? If so, then they have no collateral to come get.

But I like the answer above from the smart MS Attorney that basically if I am reading it right -- says you may be able to keep the stuff and not even have it as a secured claim -- only an unsecured creditor.... if that is correct that is the way I would go LoL

[MelodyAM75]

I did some more research and it seems that abandonment refers to the trustee abandoning the personal property because it would not be beneficial to attempt to repossess it or sell it because the value is much lower than the loan amount. Basically, it seems that the court rules that the property is not worth reposessing or selling and they abandon any claims to it. Most of the stuff I have listed is not worth much...I have 4 TVs listed, but one I have had since I was 16 and another since I was about 20 so they are very old (still working though).

[MSbklawyer]

I am confused... if you abandon the collateral doesn't that mean you are giving it back? If so, then they have no collateral to come get.

But I like the answer above from the smart MS Attorney that basically if I am reading it right -- says you may be able to keep the stuff and not even have it as a secured claim -- only an unsecured creditor.... if that is correct that is the way I would go LoL

Yes. If the collateral is:

A. Household goods (as defined by the bk code) and

B. Exemptable and

C. The security interest is non-possessory (meaning they don't actually take possession of it) and

D. Non-purchase-money (they didn't loan you the money to buy the collateral)

then you can avoid the lien entirely. Upon successful avoidance, the debt is treated as unsecured.

See the bk code at 11 U.S.C. 522(f)(1)(B). http://codes.lp.findlaw.com/uscode/11/5/II/522