Misconception # 2 – I can keep my car and house and I don’t have to repay the car loan or mortgage after my debts are discharged through bankruptcy.
False. A house with a mortgage on it or a car with an outstanding loan are considered secured property or debt. The mortgage company or bank has a secured interest in the house meaning that if a person does not pay the applicable mortgage payments, the mortgage company can foreclose and obtain possession of the house. The same thing occurs for a car with an outstanding note. If a person does not make the monthly payments on the car note, the holder of the note (bank, credit union) can repossess the car. In Michigan, the bank, mortgage company, and credit union after they obtain possession of the property have six years whereby they can sue the debtor for the outstanding debt even though the company obtained the property. Bankruptcy discharges the debtor’s liability behind the mortgage or note; however, in order for the debtor to remain in possession of the house or car, the debtor must make the monthly payments as scheduled.