There are two types of debt to be addressed when filing bankruptcy; secured and unsecured. The debt on a car loan is a different type than that of unpaid taxes, for example, and you need to know your bankruptcy alternatives when filing personal bankruptcy. Knowing the categories of your debt helps prioritize your payoffs and makes sure you don’t lose the assets tied to the debt.
Secured debt is a loan secured or guaranteed by a collateral or asset, like your mortgage and your home. If you default on this kind of debt, the creditor (the bank or mortgage company) can take the property or asset securing it and sell that property to recoup the balance on the loan.
Examples of secured debt or loans:
Debts not requiring an immediate pledge of property are called nonconsensual loans. This debt category of allows creditors to file judgement against you if you default on payment and, if awarded, get a lien against you and your property. A lien makes sure the first portion of any sales proceeds of the property are paid to the creditor before you are paid the remainder. Examples of liens filed against personal property are: tax liens on property (federal, state, local); money judgements; liens created by law (mechanic’s or homeowner). These don’t require a judgement to be recorded.
Unsecured debt is usually more expensive (higher interest rate) because there’s no specific asset securing it. Credit card debt, student loans and unpaid medical bills are examples of unsecured debt, and if you have fallen behind with payments the lenders can’t take your personal property in settlement. However, their collection efforts can make life very unpleasant and difficult, which sometimes results in debtors seeking relief via Chapter 7, Chapter 11 or Chapter 13 bankruptcy filing.
If your phone and/or mail are filled with messages and threats from debt collection firms and lenders are reporting your non-payment to the credit bureaus, their next step could be suing you, garnishing your wages and/or placing a lien on your assets. If you’re feeling strangled by debt, have unpaid taxes or need to explore bankruptcy alternatives for other reasons, call for a free consultation with Steven Palmer of Curtis, Casteel & Palmer, PLLC Bankruptcy today. There is life after bankruptcy, and a we can help you get to that more peaceful place faster.
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