While Chapter 13 bankruptcy reorganizes many of your bills, reducing them, giving you more time to pay them or cutting your interest rate, Chapter 7 bankruptcy discharges them entirely. Deciding which type of bankruptcy is the best for you isn’t necessarily a matter of preference – you have to qualify to file for Chapter 7, and if your income is too high then you will have no choice but to go for the plan that requires that you continue paying. If, however, you qualify for Chapter 7 then one of the first things that will need to be determined is what portion of your debt is secured and what portion is unsecured.
Secured debt is debt that is backed up by an asset. In other words, when the lender allowed you to borrow money, they did so knowing that if you didn’t pay, they could take something from you. If you borrowed to buy a car then your loan is secured by the car itself. The same is true of a mortgage, which is secured by the property that you purchased with the lender’s help. When you charge purchases to a credit card or incur a bill at a hospital, the only thing your debt is based on is your promise to pay. Those bills are unsecured.
When a creditor has a secured interest in your loan, that means that they can force you to give them the secured asset or force you to sell it in order to pay them what you owe. Even if the item is worth less than your balance, they have the right to recover the remaining balance.
When you file for Chapter 7 bankruptcy, the assets that secured those loans will most likely be sold in order to pay back the people you borrowed from. You do have some options to keep your property, but those involve paying for them. You can’t just walk away from a secured debt the way that you can from unsecured debt. That may involve making payments or taking the money from other sources. In some cases, you can reaffirm a debt, removing it from your Chapter 7 estate, but that means you have to keep making payments on your debt, and the lender has to agree to this.
Bankruptcy can be complex and upsetting. We are here to help. Contact us today to set up a time to discuss your options.
