What is the Difference Between Secured and Unsecured Debt in Bankruptcy?
When you are planning to file for consumer bankruptcy, you may have heard that there is a difference between how secured and unsecured debt will be handled. If you are thinking about Chapter 7 bankruptcy, it is unlikely that you have many (if any) assets that the bankruptcy trustee will be able to liquidate in order to repay creditors. At the same time, it is important to understand how secured and unsecured debts are likely to be treated in your bankruptcy case. If you have questions or concerns, an Oak Park bankruptcy lawyer can help.
What is Secured Debt in a Bankruptcy Case?
Secured debt is not only a term that is used in personal bankruptcy cases, but also in relation to certain types of debt outside the context of bankruptcy. A secured debt is a particular type of debt that has been secured by property, or for which the creditor has a lien. According to the Cornell Legal Information Institute (LII), a secured debt is defined as “a creditor’s claim that is secured by a lien of some type in a debtor’s property either by the debtor’s own agreement or involuntarily with a court judgment or taxes.”
Common examples of secured debt that consumers have include mortgages (the lender can foreclose if you do not pay) and automobile loans (the lender can repossess the property if you do not make payments on the loan). These are examples of secured debt that the consumer willingly took on, but there are also other types of secured debt that consumers may have when they file for bankruptcy. For example, if you owed a certain type of debt and the creditor took you to court, that creditor could have gotten a lien on your home or on other property.
In a Chapter 7 bankruptcy case, the debtor will need to provide full and detailed lists of secured debts. For most secured debts, the debt can be discharged, but the debtor will need to turn over the property. In other words, even though the debt you owe can be discharged, that does not mean you can keep the property. Usually, in order to keep the property associated with secured debt, you will need to reaffirm the debt. Reaffirming the debt means that the debt will not be discharged in your bankruptcy case, and you will still owe it once the bankruptcy case is completed.
What is Unsecured Debt in a Bankruptcy Case?
Unsecured debt, according to the LII, is “debt that doesn’t give the creditor the right to take a particular item of property if the debtor doesn’t pay.” The most commonly known type of unsecured debt is credit card debt. Other examples of unsecured debt include medical debt, student loan debt, tax debt, and family support. Unsecured debt is not just a term associated with bankruptcy, but rather is a term used to describe these types of debts that are not secured by any particular property.
In a bankruptcy case, these types of debt are divided into two categories in a bankruptcy case: priority debt and non-priority debt. Priority debts are typically non-dischargeable unsecured debt, such as some tax debt or family support payments like child support. If there is anything in the bankruptcy estate, priority debts get paid first in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, priority debts must be paid fully by the end of the repayment plan period.
Contact a Bankruptcy Lawyer in Oak Park
If you have questions about filing for consumer bankruptcy, or questions about how your debts will be handled in a bankruptcy case, an Oak Park bankruptcy attorney can help. Contact the Emerson Law Firm for more information.
See Related Blog Posts:
Five Things to Know About Chapter 7 Bankruptcy for Consumers
What Documents Do I Need to File for Bankruptcy?
What is Secured Debt in a Bankruptcy Case?
Secured debt is not only a term that is used in personal bankruptcy cases, but also in relation to certain types of debt outside the context of bankruptcy. A secured debt is a particular type of debt that has been secured by property, or for which the creditor has a lien. According to the Cornell Legal Information Institute (LII), a secured debt is defined as “a creditor’s claim that is secured by a lien of some type in a debtor’s property either by the debtor’s own agreement or involuntarily with a court judgment or taxes.”
Common examples of secured debt that consumers have include mortgages (the lender can foreclose if you do not pay) and automobile loans (the lender can repossess the property if you do not make payments on the loan). These are examples of secured debt that the consumer willingly took on, but there are also other types of secured debt that consumers may have when they file for bankruptcy. For example, if you owed a certain type of debt and the creditor took you to court, that creditor could have gotten a lien on your home or on other property.
In a Chapter 7 bankruptcy case, the debtor will need to provide full and detailed lists of secured debts. For most secured debts, the debt can be discharged, but the debtor will need to turn over the property. In other words, even though the debt you owe can be discharged, that does not mean you can keep the property. Usually, in order to keep the property associated with secured debt, you will need to reaffirm the debt. Reaffirming the debt means that the debt will not be discharged in your bankruptcy case, and you will still owe it once the bankruptcy case is completed.
What is Unsecured Debt in a Bankruptcy Case?
Unsecured debt, according to the LII, is “debt that doesn’t give the creditor the right to take a particular item of property if the debtor doesn’t pay.” The most commonly known type of unsecured debt is credit card debt. Other examples of unsecured debt include medical debt, student loan debt, tax debt, and family support. Unsecured debt is not just a term associated with bankruptcy, but rather is a term used to describe these types of debts that are not secured by any particular property.
In a bankruptcy case, these types of debt are divided into two categories in a bankruptcy case: priority debt and non-priority debt. Priority debts are typically non-dischargeable unsecured debt, such as some tax debt or family support payments like child support. If there is anything in the bankruptcy estate, priority debts get paid first in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, priority debts must be paid fully by the end of the repayment plan period.
Contact a Bankruptcy Lawyer in Oak Park
If you have questions about filing for consumer bankruptcy, or questions about how your debts will be handled in a bankruptcy case, an Oak Park bankruptcy attorney can help. Contact the Emerson Law Firm for more information.
See Related Blog Posts:
Five Things to Know About Chapter 7 Bankruptcy for Consumers
What Documents Do I Need to File for Bankruptcy?
Comments
Post a Comment