If you are considering filing for bankruptcy in California, you should understand what type of debt you can discharge. The debts you are permitted to discharge in a Chapter 7 bankruptcy may be different from the debts discharged with a Chapter 13 bankruptcy filing. That is why it is important to understand the difference between secured and unsecured debt when filing for bankruptcy. If you or a family member would like assistance filing for bankruptcy, you should consult with an experienced Sacramento and Roseville bankruptcy lawyer today. The skilled legal team at The Bankruptcy Group is here to guide you through the bankruptcy process. The Bankruptcy Group explains how unsecured debt affects your bankruptcy filing.
Unsecured Debt vs. Secured Debt
The purpose of a bankruptcy filing is to decrease or eliminate debt that you cannot afford to pay. The chapter of bankruptcy that you file will affect what type of debts you can discharge and even how quickly they can be discharged. For example, a discharge of debt in a Chapter 7 bankruptcy may occur after a couple of months. Alternatively, a Chapter 13 debt discharge could take years. That is why it is important to understand the type of secured and unsecured debts are discharged in different forms of bankruptcy.
Chapter 7 Debt Discharge
Secured debt is debt that is tied to a piece of property that can be repossessed in the event of a default. For example, if you neglect to pay your mortgage, the lender will initiate foreclosure proceedings. It is also possible to enter into a secured debt agreement involuntarily, like if the Internal Revenue Service (IRS) issues a tax lien on your home for failure to pay taxes.
One important aspect of Chapter 7 bankruptcy is that you can discharge debt that is secured. However, the lender may be able to repossess the property despite the discharge.
When you file for Chapter 7 bankruptcy, you must make a plan to handle your secured debts. Most filers opt to return the property to the creditor. However, some debtors may want to keep the property. In cases like this, the debtor must agree to repay the debt after bankruptcy and must negotiate the terms of the repayment. For example, if you want to continue making monthly payments for the property, you must confirm this arrangement with the creditor.
Alternatively, unsecured debt is a debt that does not require collateral. For example, credit card debt and medical bills are forms of unsecured debt. As unsecured debt is not secured by collateral, a creditor cannot make a claim against any of your property.
Unsecured creditors will typically only receive a distribution if you have property that is nonexempt from the bankruptcy proceedings. This means that the property will be taken and sold to fulfill obligations to unsecured creditors. The following is a list of nonexempt assets that can be sold:
- Antique property
- Musical instruments not tied to your business
- Newer model vehicles
- High-fashion clothing
It is important to note that if you do not have assets to sell, an unsecured creditor can file a lawsuit against you instead. If they prevail in their lawsuit, they can collect on the unpaid debt.
Chapter 13 Discharge
Chapter 13 bankruptcy allows a debtor to reorganize their debt and create a repayment plan to be carried out in a certain amount of years. Like Chapter 7 bankruptcy, secured debt in a Chapter 13 bankruptcy is tied to collateral that can be repossessed in the event of a default. However, you can choose to include this debt in your repayment plan or allow the creditor to take it back.
Unsecured debt in a Chapter 13 bankruptcy is handled slightly different than a Chapter 7 bankruptcy. For example, an unsecured debt could also qualify as a priority debt that must be added to your reorganization plan and paid in full. Child and spousal support are two forms of priority debt.
Depending on the circumstances, Chapter 13 bankruptcy could lead to unsecured creditors receiving all the money they are owed or only a portion of that debt. Our firm can help you determine your liability for unsecured debts.
Our California Bankruptcy Attorneys are Ready to Work with You
If you need help determining what form of bankruptcy is best for your situation, contact an experienced California bankruptcy attorney today. The Bankruptcy Group attorneys possess years of combined legal experience that they will use to represent you. We will work for you to determine the form of bankruptcy that complements your unique financial situation. To schedule a free legal consultation to discuss the possibility of a bankruptcy filing, call The Bankruptcy Group at 888-710-4334.