Everyone has a unique financial situation and no two people share the same debt burden, unless perhaps they are married. Because everyone’s situation is unique it often begs the question, Will my debts qualify for bankruptcy?
Yea or Nay?
Debts fall into one of two categories: unsecured debt and secured debts. Secured debts are those that have collateral, or an asset, “secured” against the loan in the event of default. Mortgages, car loans and title loans are all examples of secured debts. In general, secured debts are better managed through Chapter 13 if the borrower intends to keep the asset, otherwise the asset could be at risk of being liquidated for debt repayment.
Unsecured debts are those without any collateral and are only borrowed on the promise to repay. Credit cards, medical bills and some loans are common examples of unsecured debts. As the most common type of debt brought into a bankruptcy filing, unsecured debts are generally easy to manage in either Chapter 7 or 13 cases. However, there are a few exceptions.
Some unsecured debts do not qualify for bankruptcy. Back due child support or alimony payments are never eligible for a debt discharge in bankruptcy. Debts that accumulate as the result of unpaid restitution or criminal negligence charges are also not eligible for discharge bankruptcy. As a general rule, federal student loan debts and some tax debts are also not eligible for bankruptcy. However, there are instances in which some student loan debts may become eligible for Chapter 13 protection only. Although some income tax debts may qualify, there are very specific rules about eligibility.