Types of Debt in Bankruptcy

: Chris Lee Law Firm

  Filed under: Debt

 DebtAlmost all consumer debt can be classified as unsecured, such as for credit cards and medical bills, or secured like your home or your car. Depending on what type of debt you have the most of will determine what type of bankruptcy you should file.

Secured Debt

This type of debt is backed by the collateral of your home or vehicle. This should usually be your first priority when you are paying your monthly bills. This way, you ensure that you can keep your most valuable possessions. If you fail to make these payments, you can lose your home or your car. If you find yourself in the position to not be able to make these payments, you may not have the money necessary to begin someplace else. Vehicle repossession or foreclosures can happen if you are behind on secured debt.

Unsecured Debt

Unsecured debt is the most common debt that people get behind on their payments. In the United States, credit card debt makes up for approximately 40% of all consumer debt. Also included in unsecured debt are store charge cards, medical bills, personal loans, tax debt, and student loans. Tax debt and student loans are difficult to have eliminated in bankruptcy. Alimony and child support are also considered unsecured debt, you cannot eliminate them in bankruptcy and the penalty for not paying them can be steep.

Unsecured creditors call, send demand letters and could potentially sue you for payment when you do not keep your accounts current.

Chapter 7 Bankruptcy

If most of your debt is unsecured, you may be able to eliminate all of the qualifying debt within three to six months with a Chapter 7 bankruptcy. This type of bankruptcy is considered an elimination bankruptcy. The trustee assigned to your case can take your nonexempt assets and sell them to satisfy your creditors, although this rarely happens since the exemption rules are generous.

Chapter 13 Bankruptcy

If you are behind in your mortgage payments or your vehicle loans, you may want to file Chapter 13 bankruptcy. In this type of bankruptcy, you reorganize your debt and on a pre-approved plan and take three to five years to repay any back debt. At the end of the predetermined time, any qualifying debt will be discharged in bankruptcy. If you wish to continue using your home or your vehicle, you will have to keep making those payments.

If you have questions about what kind of debt you have and if you filing for bankruptcy would help you get out of your tough financial situation, contact a Fort Worth bankruptcy attorney.


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