Forms Of Debt
The two primary types of debt are unsecured and secured. Secured debts are those that are backed by collateral, such as a mortgage or vehicle loan. Secured debts confer repossession or foreclosure rights on the lender in the event of default. For this reason, secured debts are resolved differently than unsecured debts in bankruptcy.
Unsecured debts are those that are not secured by a property or asset, which means the lender has few collection rights if you default on the loan. Unsecured debts include credit card balances, utility bills, medical expenses, and some personal loans. These debts are typically readily managed in bankruptcy, unless they fall into a third category of debt known as priority.
Priority debts may be secured or unsecured, but their primary classification is based on the lender and the reason for the debt. Priority debts include IRS tax arrears, student loan obligations, and criminal restitution payments. In general, these debts are not eligible for discharge in bankruptcy, but in some cases they have been approved for inclusion in a Chapter 13 repayment plan. Important to note about priority debts is that these creditors will have first access to any repayment funds made available through a Chapter 13 plan, and will likely be paid in full in the majority of cases.
Discharging Debt
The resolution of a debt in bankruptcy depends on the nature of the debt. As was previously mentioned, priority debts are repaid first through a Chapter 13 plan. It is relatively uncommon, and at the court's discretion, for a Chapter 7 plan to eradicate any priority debt at no cost to the debtor.
Secured debts will only be """"discharged"""" if the court-approved Chapter 13 repayment plan is completed in full. In addition, the debtor must resume the remainder of the loan in order to retain the property. However, reaffirming debts can be challenging, particularly if the property is exempt. This is where consulting a bankruptcy attorney is useful. Mortgages and auto loans are frequently the most prized assets for a debtor, and retaining them is typically of the utmost importance.
The discharge of unsecured debts is possible under either Chapter 7 or Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, if available, the debt is satisfied through the liquidation of any nonexempt non-eligible property. Otherwise, creditors are required to recognize the debt as paid in full. Chapter 7 cases are extremely specific to the debtor's income, assets, and funds, and no two cases are handled identically. Some discover that their debts are discharged with minimal or no expense or property loss.""
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