If you are planning to file a personal bankruptcy, it is important to understand that you have different types of debt which are treated differently in your filing. The main classifications of debt are priority debts, secured debts and unsecured debts. Below is a general explanation of each:
The law provides certain types of debt with priority, which generally means that this type of debt must be paid in full and it is typically paid before other types of debt are paid. The most common examples of priority debts are taxes and child support payments.
A secured loan is one in which the borrower pledges an asset as collateral to the lender. This type of transaction grants the lender the authority to foreclose or seize the property pledged as collateral if the borrower defaults on the loan. The collateral can then be sold or auctioned by the lender and the proceeds applied to pay all or a portion of the borrower’s defaulted loan. The two most common examples of secured loans are mortgage loans and vehicle loans.
If the lender grants a loan without an asset pledged as collateral, it is an unsecured loan. Most, if not all, of a debtor’s unsecured debts are discharged in a Chapter 7 filing. In a Chapter 13 case the debtor will pay a percentage of what is owed on the unsecured debts, but it is typically only pennies on the dollar owed (if anything at all). The two most common types of unsecured debts are medical bills and credit card debt.
Let us review your financial situation and help you understand the type of debt you have and how it will be treated in your bankruptcy filing. The personal bankruptcy process can be simple and effortless if you retain an attorney who will explain the steps to you. Ms. Anderson is dedicated to walking you through each step, explaining the process along the way. At The Law Office of Diane Anderson, we are determined to help our clients obtain the best results possible.