If you are looking to file bankruptcy, it is likely to eliminate your debt – or at least gain some control over it. You may wonder what actually happens to your debt in this process. That depends on what type of bankruptcy case you file.
In some bankruptcy cases, most (if not all) debts will be discharged. In some cases you will be required to pay back a percentage of your debt through a repayment plan, and in rare cases some of your assets may be liquidated to pay your debts.
Here is the information you need to know before filing bankruptcy.
The entire goal behind filing for bankruptcy is to be granted a clean slate. Whether you file for Chapter 7 or Chapter 13 bankruptcy, many kinds of debt will indeed be discharged at the conclusion of your case – but other types of debts may not.
Secured vs. Unsecured Debt
There are two major types of debt – secured and unsecured.
Unsecured debt is money which is borrowed which is not backed up by any collateral. Collateral is something put up as a type of security for repayment; without the collateral, the lender has no recourse for repayment if the buyer defaults. Common types of unsecured debts are medical debts, repossession claims, personal loans that were not backed by security, and credit cards.
In contrast, a secured debt is a debt that is attached to collateral. If a borrower does not repay the debt as agreed upon, the creditor has the right to take the property. The most common consumer secured loans are home and car loans.
Can Unsecured Debt Be Eliminated?
* The first line of defense against credit card debt is typically consolidation or debt settlement, a good faith effort to pay back debts. However, neither of these two actions protects you from the credit card company suing you. It is rare for a credit card company to challenge a bankruptcy filing, but they may fight their particular debt being discharged.
* High medical debt is often the driving reason for filing for Chapter 13 bankruptcy. Although individuals will be required to repay at least a portion of their debt, they are protected by the ordered Chapter 13 repayment plan.
* Filing Chapter 7 or Chapter 13 bankruptcy will prevent the IRS from demanding payment temporarily, but they may be permitted to collect from you at a later date. Some tax debts can be discharged, and some will need to be paid in full according to the agreed upon plan.
What Happens When You File for Chapter 7 Bankruptcy?
Chapter 7 bankruptcy will provide a clean slate by discharging most kinds of debts. With a few exceptions, you can wipe out debts which were incurred prior to the bankruptcy filing (pre-petition debts). However, debts incurred after filing are typically not allowed to be discharged.
When filing Chapter 7, there is no direct repayment of debt. A bankruptcy trustee may take possession of non-exempt property, sell it, and distribute the assets to creditors.
What Happens When You File for Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is typically used as a tool to reorganize debts and catch up on payments through a structured repayment plan. If you successfully complete your repayment plan, any remaining dischargeable debt will be eliminated.
Chapter 13 is generally chosen when an individual has too much money to file Chapter 7, or would lose too much property by filing Chapter 7. Those who successfully complete Chapter 13 are allowed to retain their property.
If you are overwhelmed with debt, don’t despair – there is help! Call the offices of Sarasota and Bradenton bankruptcy attorney Richard V. Ellis today.
We can help you to navigate successfully through the bankruptcy process, choosing the best possible solution for you. Don’t go through this alone – call today.