How Secured and Unsecured Debt Affect Bankruptcy

In Chapter 7 and Chapter 13 bankruptcy, whether a debt is secured or unsecured makes a big difference. Different types of debts are treated differently in bankruptcy proceedings. Certain debts are eligible for discharge. In order to better understand the distinction between the secured and unsecured debt, you should acquaint yourself with their unique characteristics. Your experienced bankruptcy attorney in Poway has prepared some basic explanation to dispel any doubts you may have.

What is secured debt?

Secured debts are those that you collateralized with an asset you own as the repayment guarantee. Because of the added protection that the collateral gives to the creditors, secured loans are usually offered at lower interest rates. But if you fail to make payments, secured creditors are entitled to the collateral.

A mortgage is a good example of this type of debt. A lender will place a lien, or financial interest, on the property until the loan is fully repaid. In case the borrower defaults on the loan, the bank can seize the property and sell it to recover the owed funds.

What is unsecured debt?

Unsecured debts require no security for the loan. Any debt you have without specific collateral is unsecured debt. Your credit card debt, for example. If you stop making payments on your credit card and the creditor fails to get you to pay, you may face a debt collector knocking on your door.

The creditor, though, has no right to acquire any of your assets. First, he must sue you for repayment and ask the court for permission to seize your property, garnish your wages or put a lien on one of your assets so you can’t sell it without paying your debt.

Dischargeability

Though the borrower is responsible for repaying all of his debts, it is not always possible. Debt piling up is one of the warning signs you may need to declare bankruptcy. After consulting with a bankruptcy attorney in Poway or another area you live, you may see it as your best chance to make a fresh start. But keep in mind that not all debt is dischargeable.

Secured debt. Secured debts are non-dischargeable in bankruptcy. Therefore, if you continue to make payments, you’ll be able to keep your house or car. If you decide to give back the property, the deficiency left under the original contract becomes unsecured debt and you may get it discharged on the same basis as other unsecured debts.

Unsecured debt. In case of unsecured debt, bankruptcy can wipe out most of it, such as personal loans, medical and utility bills, credit card debt, and civil court judgments (unless they involve fraud).

Priority unsecured debt. There are, though, priority unsecured debts, which need to get paid. Even after your bankruptcy case is over, you will continue to owe debts such as certain tax debts, child support and alimony and court fees and fines.

Even though they don’t belong to priority unsecured debts, student loans and regular income tax debt are not discharged unless you prove an exception applies.

If you file for Chapter 7 bankruptcy, non-dischargeable debts are still collectable after bankruptcy. If you file for Chapter 13 bankruptcy, you will still owe any portion of these debts you can’t fully pay through your repayment plan. Debts not listed on your bankruptcy petition are also not discharged. Creditors must receive notice of the bankruptcy to be bound by it.

Contact a bankruptcy attorney Poway

Being a complex process that takes many factors into account, bankruptcy requires thoughtful consideration and consultation with a lawyer. A reliable way to determine dischargeability is to discuss your debts with a bankruptcy attorney in Poway or another area you live.

Our attorneys at Chang & Diamond, APC will examine when each debt was incurred and if it was a personal loan, credit card charge or a medical bill. We’ll also look at some debts that may not be dischargeable, such as student loans, child support or spousal support.

Contact us for a free initial consultation to discuss filing Chapter 7 or 13 bankruptcy and make an informed decision. Our offices are located in the San Diego and Riverside area, Temecula, and El Cajon and East County area. Our lawyers are dedicated to providing you with answers and helping you deal with your financial hardship through bankruptcy.

Can You File For Bankruptcy if You Cannot Afford the Fees?

People often resort to bankruptcy as a way to get out of debt and deal with financial hardships. However, filing for bankruptcy comes with a cost of its own. Apart from various filing fees, debtors who seek professional legal representation to ensure they don’t make any mistakes when filing for bankruptcy have to pay the attorney fees too. Ironically, people who file for bankruptcy because they cannot pay their bills end up with brand new bills to pay.

Because of this, we often get asked whether debtors who cannot afford the bankruptcy fees can even file for Chapter 7 or Chapter 13 bankruptcy. In this article, we are going to explain how this works.

Paying the Bankruptcy and Attorney Fees

This situation is not that uncommon. Nevertheless, many debtors can still get a fresh financial start when filing for bankruptcy even if they are completely broke. There are several ways to do so.

How you pay the attorney fee depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. If you file for the latter, you pay all your debts, including the attorney fee, through a payment plan over three to five years.

Usually, most bankruptcy lawyers in Poway will let you pay a part of the sum upfront and pay the rest through several installments.

On the other hand, since Chapter 7 does not involve a payment plan, many attorneys ask that their fees are paid up front. However, at Chang & Diamond, APC we take pride in understanding the financial hardships our clients go through. Our practice is to accept the filing fee as well as a small portion of our fee. The debtors can then make three of four monthly payments as their case is winding towards discharge.

When the bankruptcy is discharged most of your debts are discharged, with several exceptions like student loans.

Should I File For Bankruptcy on My Own?

Filing for bankruptcy without proper representation is risky for numerous reasons. If you do not file properly, your case might get dismissed. Furthermore, some filing errors may easily get mistaken for a bankruptcy fraud, which is punishable by law.

Some document preparation services offer debtors help in filing. However, these services are not supposed to give legal advice like they do. What’s more, these services are not familiar with local bankruptcy laws like your bankruptcy lawyers in Poway are.

Looking for Reliable Bankruptcy Lawyers in Poway?

Sometimes, small changes like cutting down on costly cell phone plans, pay TV and other services will be enough to collect the money you need to pay for legal representation.

If you are looking for experienced bankruptcy lawyers in Poway, Chang & Diamond, APC can help you obtain your debt relief. If you are interested in a free initial consultation contact us at (619) 312-4900 or (800) 718-8118 or through our website form.