Bankruptcy and Your Debt

How Secured and Unsecured Debt is Affected by Bankruptcy

In determining whether to seek bankruptcy relief, one of the key issues to consider will be how your debt will be affected. Bankruptcy does not necessarily have the power to eliminate any and all debt, and it is therefore crucial to gain a clear understanding of what debt may or may not be able to be discharged. Generally speaking, bankruptcy allows for the discharge of unsecured debt as opposed to secured debt.

Unsecured Debt
Unsecured debt may be defined as debt that is not backed by collateral. Some of the most common types of unsecured debt include credit cards, medical bills and personal loans. This type of debt is generally able to be discharged through bankruptcy, though this may vary depending on the particular situation.

Secured Debt
Secured debt may be best described as debt that is backed by collateral. The two most common examples of secured debt are mortgage loans (where the home or other real property acts as the collateral) and vehicle loans (where the car, truck or other vehicle acts as the collateral). With secured debt, the creditor may have the right to repossess the property in the event of non-payment.

Tax Debt and Bankruptcy
A common misconception associated with bankruptcy is that it cannot eliminate tax debt. Certain taxes will qualify for discharge through bankruptcy, depending on the type and age of the tax. A debtor may also have more flexibility addressing tax debt through Chapter 13 as opposed to Chapter 7 bankruptcy.

What debt is dischargeable?
Every case is different, and whether a debtor files under Chapter 7, Chapter 13 or Chapter 11 of the Bankruptcy Code will influence what debt is dischargeable through bankruptcy. However, some of the primary types of debt that can be discharged include: medical bills, personal loans, credit cards, utility bills, cell phone bills, dental bills and certain taxes. Child support, spousal support and student loans are typically considered non-dischargeable debts.

When will my debt be discharged?
The amount of time before your debt is formally discharged will vary primarily depending on the type of bankruptcy you have chosen. With Chapter 7, you may experience a discharge of debt within as little as 4 to 6 months. In a Chapter 13 case, the discharge will occur after you have completed your plan of reorganization, which may last 3 to 5 years. Once your debt is discharged, you will have no further obligation to pay it.

The type of debt you are dealing with and the type of bankruptcy you choose are the two primary issues that will affect what debt you are able to eliminate. Because there are so many variables and because everyone's financial situation is different, it is important to talk to a qualified professional about your particular concerns, options and legal rights. You can use this directory to find and compare bankruptcy lawyers in your area – it's easy and free.

Find a bankruptcy attorneywho can help you understand how your debt will be affected.