Learn the Differences Between Secured, Unsecured, and Non-Dischargeable Debts

Certain debts, some of which are secured by property like a house or car, are dischargeable in bankruptcy, while others are not. To protect your belongings and yourself, understand which loans fall into which categories.

As a new bankruptcy client at Winterbotham Parham Teeple, a PC, you may be hesitant to file because you are unsure of what will happen to your secured loans, such as a car or home, or worried not all of your debts will be forgiven. As your bankruptcy lawyers, we assess your case and outline the various debt types, the outcomes of any secured collateral, and whether the debts are dischargeable. For a consultation with one of our Southern California bankruptcy lawyers, contact Winterbotham Parham Teeple, a PC by dialing 800.400.9000 today.

Secured Property Can Be Kept or Surrendered.

When considering a bankruptcy filing, most people are concerned about keeping their car or their home. When you finance a vehicle, get a mortgage or even finance jewelry or furniture, these debts are considered ‘secured’ by the loan attached to the item. When property is secured, the debt must be paid to retain the item. This means that mortgages and auto loans must be paid to keep your car or home, regardless of whether you file for bankruptcy.

You may be concerned about losing your home or car when the need arises to file bankruptcy on the rest of your debt. The good news is, when you file for Chapter 7 bankruptcy, courts typically allow you to either Reaffirm or ‘retain and pay’ your secured loans so you can keep the property. In California, debtors can reaffirm on car loans to keep the vehicle and continue positive reporting on their credit report and are also able to retain their home by continuing to make monthly payments. Keep in mind, regardless of your bankruptcy status, you must pay these debts to keep the creditor from repossessing or foreclosing on the property, so paying and remaining current on these debts will be important before and after your bankruptcy is filed.

If you are already behind on your monthly secured payments, a Chapter 13 bankruptcy filing can help you get caught up on arrears or consolidate your payment. When consolidating some debts, like a car loan, a Chapter 13 can even revise the amount you owe or the interest you are required to pay, depending on the circumstance. As such, Chapter 13 can be a good tool for saving your car from repossession or your home from foreclosure. In situations like this, acting quickly will be crucial to save the property, so don’t hesitate to reach out to a qualified bankruptcy lawyer for guidance on how to proceed.

Alternatively, if you find yourself saddled to a secured debt you cannot afford and no longer want, any secured debts can be surrendered through the bankruptcy and the debt discharged. This may be beneficial if you find yourself with a vehicle you no longer need or can no longer afford to maintain.

Most General Unsecured Debts are Dischargeable.

The good news is that most types of debts are unsecured, meaning they are not attached to any collateral and most general unsecured debts can be discharged in bankruptcy. Some examples of general unsecured debts include credit cards, personal loans, pay day loan, cash advances and medical bills. These debts cover the majority of what most consumers owe, so if you qualify for Chapter 7 bankruptcy, these debts should be forgiven completely.

Keep in mind that you must list all debts when you file for bankruptcy, so when you list your unsecured creditors, you must include any loans from family members or other institutions you may want to remain in good standing with (such as a credit union or family doctor’s office). Private doctor’s offices and credit unions may prohibit you from future services if you do not pay their debts, and you may feel a personal need to repay family, so you may be concerned about listing these items on your petition. While you must list all debts owed and you are limited on giving preferential payments to some creditors over others prior to filing, you can choose to make voluntary payments to any creditor after your bankruptcy case is concluded and closed. A discharge gets rid of your legal responsibility to pay the debt, meaning you have no obligation to pay and the person you owed money to can no longer try to collect from you. Nothing bars you from paying these debts if you choose to do so after the bankruptcy is over, but keep in mind you have no legal obligation to pay.

Of course, there are some unsecured debts that cannot discharge and a creditor can file a complaint asking a debt to survive bankruptcy if they have just cause. This would include debts incurred immediately before filing or other debts that the creditor believes was incurred fraudulently or with malicious intent. If you are concerned about this applying to you,

consult with our bankruptcy attorney about your specific situation by calling 800.400.9000..

Non-Dischargeable Debts

You may now be wondering what debts are non-dischargeable and if they would apply to you. Some debts are automatically non-dischargeable and will still be owed after your bankruptcy is discharged. Debts such as court fines, restitution, toll fines, traffic violations, child support or alimony are all non-dischargeable. Taxes owed to the IRS and Franchise Tax Board are also non-dischargeable, though there may be certain circumstances where they can be forgiven. Student loans also automatically survive bankruptcy unless you can prove through an adversary proceeding that you qualify for a hardship discharge. In some instances, debts that would normally be forgiven may survive, depending on the circumstances. For instance, if a debt is court ordered pursuant to a divorce decree or if a creditor files a complaint for dischargeability discussed above, the debt will likely survive.

Even if you have some debts that will not discharge, bankruptcy can still be beneficial to you. Chapter 7 can wipe out eligible debts to make payments on non-dischargeable debts easier or a Chapter 13 bankruptcy can allow you to pay these non-dischargeable debts in full, and in may instances at 0% interest. Even if you file a Chapter 7 to discharge most of your debts, you can follow up with a Chapter 13 filing afterwards if paying your remaining, non-dischargeable debt independently is too difficult. Any concerns you have regarding these debts can be addressed fully by a qualified bankruptcy attorney.

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Have more questions? Get in touch with one of our expert bankruptcy lawyers today by calling 800.400.9000 and taking the first step towards living a debt-free life.