Bank finance articles and tips

There are many misconceptions about bankruptcy, one which relates to which debts are dischargeable and which are not. In general, there are some easy rules to help you remember, but there are also a few exceptions to the rule.

Secured vs. Unsecured Debts

A secured debt is one that has an asset put up as collateral on the loan. The most common secured debts are mortgages and car loans. If you default on a secured debt, the creditor has the right to repossess the asset in effort to satisfy the debt owed. Unsecured debts are those that do not have assets secured as collateral. Medical bills, credit cards and utility bills are all examples of unsecured debts. Defaulting on an unsecured debt limits the amount of actions the creditor can take to collect on the debt.

In general, nearly all unsecured debts are easily discharged in bankruptcy. The reason is simple, there is no asset at stake that could be taken in exchange for repaying the debt. When filing for Chapter 7, unsecured debts will most likely be written off by the creditor, unless the court rules that some non-affiliated asset is to be liquidated for debt satisfaction. However, in most cases the court will simply have the creditor erase your debt. Secured debts are difficult to have discharged in a Chapter 7 case because the court may allow the creditor to repossess the asset. To avoid having secured debt assets liquidated in bankruptcy, it is recommended to file for Chapter 13. A Chapter 13 repayment plan will allow you to resolve your secured debts while keeping possession of your assets.

Student Loan or Tax Debts

These two types of debts present unique challenges in bankruptcy. First, student loan debts are either Federal or private loans. Federal loans cannot be discharged in bankruptcy and must be repaid. Fortunately, Federal lenders offer repayment assistance programs to help anyone experiencing financial hardships repay their debts. If the student loan is privately held, it is most likely an unsecured debt. However, this does not mean it will be treated the same as other unsecured debts. The bankruptcy court will most likely only allow a private student loan to be discharged through Chapter 13, not eliminated through Chapter 7.

Tax debts are serious and the IRS does not take them lightly. Paying your taxes is a civil responsibility and only in rare cases are tax debt dischargeable in bankruptcy. Even then, you will most likely be required to file for Chapter 13. Luckily, the IRS also offers ways to settle unpaid taxes outside of bankruptcy through installment plans and tax debt settlement arrangements.

The Lee Law Firms aims to help local residents resolve their debt issues and achieve a financially healthy future. They provide high quality legal representation that helps lower monthly debt payments, stop wage garnishment,prevent foreclosures and repossessions, and stop calls from creditors. The Lee Law Firm bankruptcy lawyer in Fort Worth have many years of experience in all aspects of Chapter 7 and Chapter 13 Bankruptcy.

By Christopher M
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