Bankruptcy may not be the right move for everyone, but there are few legal ways to eliminate debt and make a fresh start that are so fast and efficient. Many people are somewhat confused about how bankruptcy treats different types of debt. Before you make the decision for yourself, it pays to have a good understanding of exactly what a chapter 7 bankruptcy filing might mean for your debt obligations. Read on to learn more.
Two Main Debt Categories
In consumer bankruptcy, debt can be divided into two types: secured and unsecured. The way that a bankruptcy filing deals with these two debts types are very different and could affect both how much value can get from your bankruptcy and how much property you could stand to lose with a chapter7 filing. Here's an exploration of both types so that you can consider your own financial situation and make a decision.
When you take out a loan that is tied to a piece of property, that is secured debt. The debt is secured by the property itself. Two commonly used secured debt loans are car loans and mortgage loans. The property is at risk if you fail to make your payments as agreed; the car can be repossessed and the home can be foreclosed upon.
Fortunately, a bankruptcy filing could bring at least a temporary stop to any foreclosure or repossession proceedings, but if you are behind on a secured debt you stand to lose it eventually if you fail to get caught up on your payments. Also fortunately, the second category of consumer debt and the way bankruptcy treats it could actually help you with your finances in general enough that you might have the extra funds needed to make everything right with your lenders and keep your property.
When you sign on for credit card debt, there is no property securing it. If you don't pay the debt as agreed, you may face some punitive circumstances but none of your property is at risk. In other words, there is no property tied to the credit card debt. Since so many consumers have a large load of credit card debt, it is here that the maximum benefit of filing for bankruptcy becomes more apparent.
When you fail to make your credit card minimum payments as agreed, late fees and interest debt can mount, making it all but impossible to ever get caught up. If the debt remains unpaid, you can be sued in court and a judgment entered for the amount of your debt, plus court costs. If you are falling behind, take action quickly and file for bankruptcy. You will never need to pay another cent of that credit card obligation since all unsecured debt simply disappears with a chapter 7 filing.
Speak to your bankruptcy attorney about a bankruptcy filing as soon as possible.