When deciding to file for bankruptcy, knowing which type of bankruptcy protection is best can be difficult. Besides the obvious differences in qualification standards, your debts and assets play a big role in deciding between bankruptcy cases. The type of debt you are carrying is highly important when choosing which bankruptcy filing to pursue.
Types Of Debt
There are two main types of debt in bankruptcy: unsecured and secured debts. Unsecured debts are those that do not hold any asset or property against the loan as collateral. These debts include credit cards, medical bills and other loans that are free from creditor repossession rights. Managing these debts can be easily handled through a Chapter 7 case, by which the debts can be eliminated with little risk to your assets. However, just because you can get these debts eliminated without the need to repay doesn’t mean you shouldn’t consider repaying them. Your credit standing and future chances at securing more credit will be better off if you at least repay a portion of these debts either through Chapter 13 or outside of bankruptcy.
Secured debts are those that hold an asset or property against the loan as collateral. This gives the creditor rights to repossess or liquidate the asset if you default on the loan. Due to the sensitive nature of secured debts, they are better off managed in a Chapter 13 case. If you plan to keep the asset or property you will be required to repay your secured debt, otherwise you risk losing it to the hands of the creditors. Although some unsecured debts, such as tax debts and student loan debts, are not secured against any collateral, they are most often handled in Chapter 13 cases along with other secured debts.