Understanding Bankruptcy Benefits: Secured vs. Unsecured Debt

It is important that you understand the benefits you will receive when considering a bankruptcy. The specific financial help that you get from a bankruptcy filing will vary depending upon many factors, including what chapter of the bankruptcy code that you choose. However, one of the biggest and most important issues that impacts the benefits you get from bankruptcy is the type of debt that you have.

You should talk with a bankruptcy attorney to learn more about the different categories of debt and how they are treated.  You will want to know which debts can be discharged and which cannot be discharged.  Understanding the different rules for each category of debt can help you to determine if a bankruptcy filing makes financial sense for you or not.

One of the first things to understand about different kinds of debt is that debt can be broadly divided into two categories: secured debt and unsecured debt.

Unsecured debt is debt that does not have collateral associated with it. There is nothing to protect the creditor and the only assurance that the creditor has that you will pay the debt is your promise to pay. Credit card debt is one of the best-known examples of unsecured debt.

While there are secured cards that are available to people with bad credit, the majority of credit card holders are simply given a line of credit and they post no collateral.   You can charge anything you want on a credit card, from clothing to furniture for your house or groceries. The creditor cannot generally come and repossess the things that you have bought if you don't pay.

Secured debt, on the other hand, ensures that a creditor has something to take and sell if you don't repay the money that you owe. Both car loans and mortgage debt are two very well-known examples of secured debt. If you buy a car, the car is collateral for the loan. The lender has a security interest in the car. This means they have rights when it comes to the vehicle. If you do not pay the bills, the creditor can come and take the car because of their security interest in it. If you have a mortgage loan, the house is the collateral and the creditor can also come and take the house if you don't pay because of their security interest in it.

In bankruptcy, we must include all of your debt; secured and unsecured.  The bankruptcy chapter you choose will determine how the different debts are treated.  You should talk with your attorney about the kinds of secured and unsecured debts you have so you can get a clear picture of the best way to secure your financial future through bankruptcy.

Categories: Posts