|Image courtesy of David Castillo Dominici |
Secured debt is your mortgage and auto loan. This is the type of debt a person has given a property interest, a lien, to the creditor in a specific piece of property like a car, an appliance, or a home. These debts are generally not discharged when you keep the property. If the debtor wants to keep a car for instance, the debtor must be able to pay the loan in full. If the debtor cannot pay the loan and gives up the property, then the amount owed above the value of the property becomes unsecured and can be discharged.
Priority unsecured debt has limitations on discharge-ability. This takes some analysis to determine whether the back taxes can be discharged. Discharging this type of debt is determined by several factors including when it was access, for what purpose, the taxing authority itself, etc.
Students loans are considered unsecure debt but extremely difficult to discharge. The bankruptcy law distinguishes student loans from other unsecured debt and requires a person to prove "Undue Hardship" before the courts can discharge a student loan. The courts imposed such a high threshold to meet the "Undue Hardship" test that it is nearly for the average debtor to meet the burden.
As a result, the way different type of debt is treated will influence if you file bankruptcy and whether it will be under chapter 7 or 13. If a person has mostly unsecure debt (and make makes the "means test), he or she would probably want to file under chapter 7. People who have secured debt, want to keep the property and is behind on payments will probably need to file under chapter 13. Any combination of debt between these two examples requires a person to sit down with a bankruptcy attorney to help them decide what the benefits and drawbacks are on filing for bankruptcy.
If you want to know more about Mark Medvesky or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.
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