Secured And Unsecured: Learning About Bankruptcy Debt

11 February 2019
 Categories: , Blog

Most consumers don't give much thought to the types of debt they have. They might realize that a mortgage is different from an auto loan, but the differences go beyond that. If you are about to declare chapter 7 bankruptcy, you will need to know and understand how your debt is divided. For bankruptcy purposes, your debts fall into two main categories – secured and unsecured. The way these debts are dealt with should concern you if you want to get the most out of bankruptcy without losing property, so read on to learn more.

Secured Debt

When you apply for credit, you might need to provide collateral. That means that you are pledging property to back up your promise to repay the loan. In most cases, the collateral is the item you are purchasing with the loan money. For car loans, the car itself is the collateral. For mortgages, it is the home. You may also have bank loans that use real estate or other property as collateral. No matter what, if you fail to make your payments on items with collateral, you are putting that property at risk. Foreclosure and repossessions are common actions that creditors can take to recoup your lack of payments.

A bankruptcy filing can put a temporary stop to collection activities like foreclosure and repossessions, but the help is only temporary. You must find a way to get caught up on your obligations or you will eventually lose the property since bankruptcy can only do so much to protect the loss of property based on secured debt.

Unsecured debt

Some forms of debt require no collateral at all. Credit cards are usually easy to obtain and your ability to be approved for one is based on your credit score and your income. Since there is no property backing a credit card debt up, creditors have limited recourse available for collecting the debt when you fall behind on payments. If you fail to pay after repeated warnings, you may be taken to court and have a judgment handed down against you. This might mean wage garnishments and liens against your property.

One of the most valued benefits of a chapter 7 filing is the elimination of credit card debts. Since your property is not in jeopardy, you no longer need to worry about making minimum payments each month or paying off the debt balance. However, you must take action and file before you get taken to court. While a bankruptcy filing might lift the wage garnishment and liens, you will still be responsible for paying the court and legal fees associated with the court case.

Speak to your bankruptcy attorney about your debt as soon as possible.