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What Debts Are Discharged in Bankruptcy? Secured vs. Unsecured Debt
For people considering bankruptcy, knowing which of their debts will be discharged can play a big decision on whether to file.
January 08, 2012 /Law and Legal PR News/ -- What Debts Are Discharged in Bankruptcy? Secured vs. Unsecured Debt
For people considering debt relief through filing bankruptcy, knowing which of their debts will be discharged (forgiven) and which assets and debts will remain after bankruptcy can play a big decision on whether to file.
Secured debt is debt for which tangible property or collateral is attached. This means the creditor retains some type of ownership interest in the property until it is paid for, and can take the item back if the debtor defaults on the loan. Secured debt includes a mortgage and a car loan.
Unsecured debt is debt for which no tangible property or collateral is attached. This debt usually has higher interest than secured debt because the debtor has no property it may reclaim if the debtor fails to pay. Unsecured debt includes credit cards and medical bills.
Both of these types of debts are treated differently in bankruptcy proceedings, depending upon which chapter is filed. However, certain unsecured loans are not subject to discharge, including federal student loans, child support payments and tax liabilities.
Unsecured and Secured Property in Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, with secured debt, the debtor can elect whether to keep the property and pay off the debt outside of the bankruptcy proceeding. A primary benefit to Chapter 7 is that much or all of a filer's debt is discharged through bankruptcy.
Chapter 7 has some income limitations, however, so check with a local bankruptcy attorney to determine if you qualify.
Unsecured and Secured Property in Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, the debtor repays secured creditors pursuant to the repayment plan, while being allowed to keep the property. Creditors will generally be required by the court to reduce the interest rate if the loan has high interest. Additionally, if the item is not worth the amount that is owed, then the amount owed that is higher than the value of the item will be considered unsecured debt, and paid off as the other unsecured debt, without interest being charged. There are fewer exceptions to Chapter 13 discharge of unsecured debt.
Consult with an experienced bankruptcy attorney to discuss whether bankruptcy is right for your particular situation.
Article provided by Ron Lundquist, Attorney at Law
Visit us at www.all-bankruptcy.com
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