Eligible Debts For Discharge

March 20, 2012 by  Filed under: Bankruptcy 

Many people seek bankruptcy protection for their debts, but few people know the difference between their debts. Not all debts are the same and their differences are important to the bankruptcy process. Understanding types of debt and how they are managed in bankruptcy is very important to the success of failure of the case.

Secured Debts

Secured debts are those that have an asset or collateral “secured” against the loan. Common examples of secured debts are mortgages, car loans and title loans. In the event of default, secured debt creditors are granted repossession rights over the asset. These repossession rights make managing secured debts in bankruptcy a bit more tricky than unsecured debts. In general, secured debts are better managed through a Chapter 13 case so that the debtor can develop a repayment plan to satisfy the debt owed. Repayment of the debt is generally required in secured debts in order to prevent any liquidation or repossession of assets.

Unsecured Debts

Debts that do not hold any asset or collateral against the loan are called unsecured debts. Common examples include credit cards, medical bills, utility bills and some personal loans. These are the most common type of debt brought into bankruptcy and are easily managed by either a Chapter 13 or Chapter 7 filing. The reason is that unsecured debts do not grant automatic repossession or liquidation rights to creditors, giving the debtor more flexibility in finding a resolution. While many of these are easily managed in bankruptcy, there are some that are not eligible for discharge in bankruptcy.

Ineligible Debts

Some debts are not eligible for bankruptcy protection under any circumstance. Unpaid child or domestic support payments, unpaid court fees and criminal restitution payments are never eligible to become part of a bankruptcy filing. These payments are considered one’s civil responsibility and are not eligible for payment assistance. In general, tax and student loan debts are also not eligible for bankruptcy protection, but there are some exceptions. Income tax debts may qualify if they are at least three years old, have a current tax return on file and were not considered part of a fraud case. Student loan payments may be allowed into a bankruptcy filing under certain circumstances. However, the debtor must be able to prove they are not federal loans, had made good faith efforts to repay the loan, are suffering a financial hardship. Further, student loans are typically only admissible into Chapter 13 cases when they are accepted into a filing.

The Lee Law Firm is a Texas bankruptcy firm that aims to provide local residents with high quality legal representation at affordable rates. Their attorneys are professional and compassionate, giving clients the personalized attention they deserve. When filing bankruptcy, the Lee Law Firm is the right choice to help in the face of financial hardship.

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