What is 'Keep And Pay'
A bankruptcy allowance that lets an individual keep an asset provided that the individual continues to make payments. Keep and pay allows the individual to not have a particular asset repossessed even though the creditor could liquidate the asset if necessary.
BREAKING DOWN 'Keep And Pay'
Individuals that declare bankruptcy do so because they are no longer able to pay their outstanding debts. The individuals may have assets that are illiquid, and which cannot readily be sold to cover what is owed. Lenders that have provided the individual money to pay for assets, such as a car, have some recourse in that they can repossess assets that were paid for with borrowed money. Some exceptions to the treatment of credit card debt in bankruptcy exist.
In most cases, when an individual files for bankruptcy his or her credit card debt is discharged. This type of debt is treated like an unsecured loan, and are given a lower priority than other obligations. If it is determined that an asset has been purchased with a credit card, such as through a cash advance, the credit card company may have recourse. Debts that are incurred through fraud or misrepresentation by the cardholder are less likely to be discharged.
Keep and pay is a bankruptcy tactic in which an individual who wants to keep an asset post-bankruptcy resolution can retain ownership of the asset provided that the individual follows a payment schedule. The debtor does this by not affirming the debt in court documents.
A credit card company may be open to this type of arrangement if the card was used to purchase an asset, and if it seems likely that the debtor will be able to make payments once out of bankruptcy. If the company seizes the asset, such as a car, it will have to administer and sell the asset, and it may not be able to recoup as much of the debt as it would had it let the cardholder continue to make payments.