How Are Different Types of Debts Addressed in a Bankruptcy Case?

 Posted on December 29, 2022 in Debt Collection

Bankruptcy is an avenue that may be available for individuals who are struggling to manage their debts. It can be an effective way of dealing with a wide variety of debts, such as medical bills, credit cards, mortgages, loans, and even unpaid taxes. However, understanding how different types of debts will be handled in a bankruptcy case is not always easy, especially since debts may be addressed differently depending on whether a person chooses to pursue a Chapter 7 or Chapter 13 bankruptcy. With the help of a bankruptcy lawyer, you can evaluate the different types of debts you have and determine your best options for relief.

Secured, Unsecured, and Priority Debts

Your approach to bankruptcy will depend on a number of factors, including the extent of your debts, the value of the assets you own, and the amount of income you earn. During the bankruptcy process, you may need to address debts such as:

• Unsecured debts - Credit card balances, medical bills, personal loans, and similar debts are not secured by collateral, and they can usually be eliminated through bankruptcy. In a Chapter 7 case, these debts may be discharged upon the completion of the bankruptcy process, which usually takes four to six months. In a Chapter 13 case, unsecured debts are consolidated into a repayment plan, and your disposable income will be used to make monthly payments over a period of three to five years. Once all payments have been made under the plan, any remaining amounts on these debts will be discharged.

• Secured debts - Some loans may be secured with collateral, such as a home mortgage or auto loan. While these debts may be discharged through bankruptcy, this will typically allow the lender to take possession of the collateral. In a Chapter 7 case, you may choose not to include secured debts in your bankruptcy, and by eliminating other debts, you may be able to continue making payments on your secured debts to avoid the loss of your assets. In a Chapter 13 case, you will usually be able to continue making payments toward secured debts while also completing your repayment plan. If you have defaulted on these debts, the missed payments and related fees may be included in your repayment plan, allowing you to catch up and avoid a repossession or foreclosure.

• Domestic support obligations - If you have child or spousal support obligations, bankruptcy will not allow you to discharge these debts, and you will be required to continue making payments on time and in full. However, if you have missed any payments, you can consolidate the past-due amounts into a Chapter 13 repayment plan, allowing you to pay off the amounts you owe over time.

• Tax debts - Most of the time, back taxes at the federal, state, or local level cannot be discharged. However, there are some situations in which it may be possible to discharge IRS tax debts that are over three years old.

• Student loans - Federally-backed educational loans, which include most student loans used in pursuit of a college degree, usually cannot be discharged through bankruptcy. However, options may be available for negotiating affordable payment plans, especially if you are able to eliminate other types of debts.

Contact Our San Antonio Debt Relief Lawyer

Dealing with debt can be intimidating, complicated, and confusing, but understanding the different types of bankruptcy options that are available can help you take steps to reduce or eliminate your debts and regain financial stability. At the Law Offices of Chance M. McGhee, we can offer guidance on the options available to you, and we can provide you with legal representation as you take steps to receive relief from your debts. Contact our Schertz bankruptcy attorney today at 210-342-3400 to schedule a free consultation and begin taking steps to receive the fresh start you deserve.

Sources:

https://www.investopedia.com/ask/answers/102814/what-debt-cannot-be-discharged-when-filing-bankruptcy.asp

https://www.bankrate.com/personal-finance/debt/debts-discharged-in-bankruptcy/