Both your secured and unsecured debt could be causing you financial issues. Filing for bankruptcy can buy you valuable breathing room for both types of debt due to the application of the “automatic stay.” Unsecured debt is the only type of debt that can be discharged at the conclusion of bankruptcy. Nevertheless, you may also consider bankruptcy protection to make it an easier pathway to paying back your secured debt, allowing you to keep your home and your car.

What Is Secured Debt and How Is It Treated in Bankruptcy?

“Secured” debt includes credit such as mortgages and car loans that are backed up by collateral. Typically, the collateral is the thing that you have purchased with the loan. If you fail to make your payments on a car loan or mortgage, your vehicle can be repossessed, and your property can be foreclosed upon.

Secured debt typically does not get discharged in bankruptcy. It would not be fair to have your secured debt discharged and to be able to keep the underlying property. How your secured debt is treated depends on the type of bankruptcy that you have filed. 

If you are seeking protection under Chapter 13, you will gain additional time to pay back the money that you owe because you have fallen behind on a mortgage or car loan payment. That amount becomes part of your repayment plan. You can keep your car and your home if you continue to make regular payments on your loans, and you keep up with your repayment plan.

When it comes to Chapter 7 bankruptcy, you have the following options as far as your secured debt is concerned:

• You can reaffirm your debt and continue to make payments, allowing you to keep the property, so long as you remain current on what you owe.
• You can redeem the debt by making one lump sum payment to the lender, although that is not always possible due to your financial situation.
• You can surrender the collateral to the lender, and you do not have to pay any shortfall because that amount is discharged in bankruptcy. 

Happens to My Unsecured Debt in Bankruptcy?

“Unsecured” debt is what is typically discharged in ‘Chapter 7’ bankruptcy, and it is what is subject to a repayment plan if you are seeking protection under ‘Chapter 13.’ If you are filing for Chapter 7 bankruptcy, certain types of unsecured debt may be discharged at the conclusion of the process. For example, personal and credit card loans may go away completely when you are done with a Chapter 7 process. Other debts, such as taxes that you owe or child support, are not discharged at the conclusion of the process.

Unsecured debt has a different treatment in Chapter 13 bankruptcy. Here, you would propose a repayment plan that addresses these debts. You must make your regular payments under the terms of the repayment plan for the three-to five-year period. If you continue to make these payments, unsecured debts are discharged at the conclusion of the Chapter 13 process. This gives you a large amount of financial relief and the ability to get a fresh start.

Whether you file for Chapter 7 or 13 bankruptcy depends on the facts and circumstances of your situation. While Chapter 7 may seem to be the better option because it can result in a more immediate discharge, it also comes with trade-offs, such as having to surrender certain non-exempt property to the bankruptcy trustee. In addition, not everyone is able to qualify for Chapter 7 because they may not meet the “Means Test.”

Contact a Fayetteville Bankruptcy Lawyer at Wilmoth Law Firm if You Have Questions About the Bankruptcy Process

If you are struggling financially, and it seems that you have no way out of your debt, speak to a Fayetteville bankruptcy lawyer at Wilmoth Law Firm. We can advise you about whether bankruptcy is the right option for your situation. To schedule a free consultation, contact us online or call today at 479-443-8080. Located in Fayetteville, Arkansas, we gladly serve clients in the surrounding areas.