Debt: Secured vs. Unsecured

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If you are considering filing a Chapter 7 or Chapter 13 bankruptcy, it is important to understand how your debt will be treated in your case. Bankruptcy law provides certain classifications for the different types of debt, and each class of debt is required to be treated similarly. Below is a summary of each type of debt:

  • Priority debt. The law provides protection for certain types of debt. Taxes are the most common example of priority debt. Usually, you must pay your priority debt in full.
  • Secured debt. If you pledged an asset as collateral for your lender, it is considered a secured loan. Your vehicle loan and mortgage loan are the two most common examples of secured debt. A secured lender has the right to seize or foreclose on the collateral if you do not make your payments. This type of loan transaction also provides the lender the right to auction or otherwise sell the pledged asset to pay all or a portion of the defaulted loan. A debtor has several options available on how to handle secured debt in a bankruptcy, so it is important to confer with your bankruptcy lawyer to understand your options.
  • Unsecured debts. A loan that does not have collateral pledged in favor of the lender is considered an unsecured debt, such as credit cards and medical bills. In a Chapter 7, most (if not all) of your unsecured debt is discharged. In a Chapter 13, you will pay a percentage of what is owed on your unsecured debt. Most debtors pay a very small percentage to their unsecured creditors.

If you have questions regarding how your debt will be treated in a bankruptcy filing or how a Chapter 7 or Chapter 13 case could benefit you, contact us to schedule a free consultation. We will provide the advice and guidance you need to obtain a fresh financial start.


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