Secured debt and unsecured debt defined

If you are considering filing bankruptcy, you are probably concerned about what types of debt you may be entitled to eliminate or discharge. This is a common and legitimate concern. After all, if you are saddled with just as much debt after bankruptcy than before it, or if your standard of living is markedly worse than before bankruptcy,  it may not the best option for you.

Part of the help that you would need in deciding whether to seek bankruptcy protection is understanding the different types of debt and how they are classified under the bankruptcy code. Essentially, there are three categories: “secured debts,”  “unsecured debts,” and “priority debts.”

A secured debt is a financial obligation that is attached or “secured to” a specific asset. Examples of secured debt include, car loans, home mortgages, boat loans, and in some instances, jewelry loans. If you fall behind on your payments on secured debts, a creditor can ask to take back the property. For homes, this includes a foreclosure proceeding. For automobiles, it is a repossession. Even if you can discharge the secured debt in bankruptcy, if you want to keep the property, you will have to pay the loan.

Conversely, unsecured debt is debt that is not attached to any item. Unsecured debts are credit card debt, medical debt and other obligations that are not attached to a piece of property. Most unsecured debt can be discharged in bankruptcy.

Priority debts are unsecured debts given special protection under the Bankruptcy Code.  Examples of priority debts are most taxes and alimony and child support.  There are a number of other types of priority debts.  Priority debts are generally not dischargeable in bankruptcy.

So if your debts are comprised primarily of unsecured debt and you have few (if any) assets, chances are that a Chapter 7 bankruptcy may be in your best interests. If much of your debt is tied up into property that you own and you need time to catch up with payments, it may be that Chapter 13 would work best for you. Either way, it is essential to discuss your situation with an experienced bankruptcy attorney so that you can make informed decisions about how to deal with your debt.

The preceding is not intended to be construed as legal advice.

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