Debts secured versus unsecured
The majority of debts held by individuals who petition for bankruptcy are unsecured debts. These include credit card debt, medical expenses, certain personal loans, and utility expenditures. These obligations are regarded as unsecured because they are not backed by collateral. Due to the absence of a secured asset, these debts can be readily managed through Chapter 13 or Chapter 7 bankruptcy.
In Chapter 13 cases, secured debts are the most common form of debt managed. Mortgages and auto loans are common examples of secured debts, in which the asset itself serves as collateral for the loan. Having pledged the asset as collateral, the only way to retain it in bankruptcy is to repay the debt through a Chapter 13 plan.
Difficult Debts
Unsecured obligations are among those that are difficult to discharge in bankruptcy. Due to their high liability status, these debts are typically not dischargeable, despite the absence of collateral. Most prevalent are tax debts, student loan debts, and past-due child support payments. These three categories of debts are rarely dischargeable in bankruptcy, and when they are, it is usually through a Chapter 13 repayment plan.
Although it is difficult to discharge these debts in bankruptcy, that does not mean there is no method to obtain relief from them. Debts for student loans are negotiable directly with the lender. Since the majority of these loans are federally funded, many qualify for federal assistance with installment plans. Student loan debts may also be eligible for deferment, wherein the borrower is permitted a one-year suspension of payments.
Additionally, tax debts have their own source of relief. The Internal Revenue Service provides two budget-friendly options for taxpayers to catch up on tax arrears. The IRS installment plan permits certain taxpayers to repay their tax debts in small payments made over a predetermined time period. In general, the IRS will waive delinquency fees and suspend interest fees for debts being repaid through an installment plan. An Offer in Compromise is a debt settlement option provided by the IRS in which the taxpayer proposes to pay a reduced quantity of the total debt. In general, the IRS reserves this option for those experiencing financial hardships, and it is the taxpayer's responsibility to request these arrangements.""
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