Secured vs Unsecured Debt – Which are discharged in bankruptcy?
What Debts Can I get Rid Of in Bankruptcy
Filing for bankruptcy is a one way to get relief from collection efforts from your creditors. However, that depends on the type of debt you owe.
This means that there are debts that can be discharged through bankruptcy but there are others that cannot. For your debts to be discharged, a judge has to sign a court order that proclaims you are free of the obligation to pay the dischargeable debt. People who are not sure of what type of debt they have can hire a lawyer to evaluate their financial situation and advise on the most appropriate debt relief option for you.
Secured vs Unsecured Debts
There are two types of debts; secured and unsecured debt. Secured debt is a type of debt that is backed by collateral such as the debtor’s car or mortgages and so on. If a debtor defaults on their secured loan, the you collateral is collected by a lender. Fortunately, most secured loans are dischargeable if there was no misrepresentation or fraud involved in obtaining them. If you are current on your mortgage or auto loan and your lawyer advises you to file for a Chapter 7 bankruptcy for your secured loan, you will have three options. First, you can surrender your property to the creditor and walk away debt free. Secondly, you can decide to keep the property and continue making the payments. In case you want to keep the asset or property, you may do this by paying for it in one lump sum payment.
Unsecured debts on the other hand are not secured by collateral. That means that a creditor cannot take any of your property without a court order if you default on your unsecured loan. Most unsecured debts can be discharged by filing a Chapter 7 bankruptcy. Once this type of debt has been discharged, your creditor is not allowed to collect that debt from you. The following are some unsecured debts that can be discharged in a Chapter 7 bankruptcy:
- Credit card debts
- Certain legal fees
- Medical bills
- Payday loans/advances
- Unsecured credit lines
- Debts that result from an accident except those from drunk driving accidents
- Debts you owe your landlord or previous landlord
- Certain income taxes
- Utility bills such as outstanding cell phone bills
Debts That Cannot Be Discharged by Bankruptcy
Sometimes when people file for bankruptcy, their creditors may file an objection to stop the debts from being discharged. Some of the debts that cannot be discharged include:
- Fines or penalties owed to the government
- Alimony or child support
- Debts you did not list in your bankruptcy petition
- Debts you incurred because of fraud or misrepresentation to creditor
- Debts you pick up after filing a bankruptcy petition
- Most student loans
Why Student Loans Are Considered Unsecured
As far as student loans are concerned, you may be able to have those loans discharged if repaying them may make it impossible for you to pay your daily expenses. If you cannot wipe out your loans through a Chapter 7 bankruptcy, you can still create a manageable debt payment plan under a Chapter 13 bankruptcy. Contact a bankruptcy lawyer to review your case and advise you on the bankruptcy options you should pursue.