Debts in bankruptcy can be classified into three categories, namely, secured debts, unsecured debts, and priority debts.
Priority debts include IRS debts, domestic support agreements and penalties for personal injuries or death occurred due to DUI offenses. These debts are generally non-dischargeable. Priority debts are still owed even after Chapter 7 or a Chapter 13 bankruptcy until they paid off.
Secured debts are the debts with a purchase contract such as a house with a mortgage or a car with purchase money as security. In Chapter 7 bankruptcy, a debtor gets three choices in terms of secured debts:
- The secured asset can be surrendered to the creditor in order to satisfy the debt.
- The debtor can offer to re-enter the contract with the creditor, with the initial terms of the original contract intact. If the creditor agrees to the offer, the debtor might be allowed to keep the property, as long as he or she is current with the payments.
- To pay the market value of the secured debt to the creditor and keep the asset. This is often an attractive choice, as the value in the secured instrument is more than the market value of the asset.
The treatment of secured debts is different in a Chapter 13 bankruptcy than in Chapter 7. In Chapter 13, the debtor can either use their bankruptcy plan to continue to make payments or surrender the asset. There is no need for the debtor to be up to date with the payments in a Chapter 13 case, as it allows the debtor to make the payments over the life of the plan. Even the creditor cannot make an issue of it. Cram-Down is also one of the possibilities.
Unsecured debts include no security interest like payday loans, credit cards, etc, which are eliminated in a Chapter 7 case. In a Chapter 13 case, the repayment plan of the debtor based on their debt and disposable income will decide whether the secured creditors get the full payment or will they get very little.
In order to know more about the kinds of debts in and their dischargeability in bankruptcy, and to take guidance from an experienced bankruptcy attorney, contact the Recovery Law Group at www.recoverylawgroup.com or call on 888-297-6203.