Challenging Debts In Bankruptcy

Challenging Debts In Bankruptcy "There are numerous misunderstandings regarding bankruptcy, one of which concerns the dischargeability of debts. There are some simple principles that will help you remember, but there are also a few exceptions.Debts secured versus unsecuredA secured debt is one for which an asset is pledged as collateral. Most secured obligations consist of mortgages and auto loans. If you default on a secured debt, the creditor has the legal right to reclaim the collateral in order to satisfy the debt. Unsecured obligations are those that lack collateral in the form of assets. Credit card debt, medical expenses, and utility bills are examples of unsecured debts. When an individual defaults on an unsecured debt, the creditor is restricted in his or her ability to collect the debt.In bankruptcy, virtually all unsecured debts are readily dischargeable. The explanation is straightforward: there is no asset at risk that could be seized in exchange for debt repayment. When filing for Chapter 7, unsecured debts will likely be discharged by the creditor, unless the court orders the sale of an unrelated asset to satisfy the debt. In most cases, however, the court will merely order the creditor to cancel your debt. It is difficult to have secured debts discharged under Chapter 7 because the court may authorize the creditor to repossess the collateral. To avoid having secured debt assets liquidated in bankruptcy, Chapter 13 should be filed. A Chapter 13 repayment plan will permit you to settle your secured debts while retaining ownership of your assets.Student Loan or Tax DebtsIn bankruptcy, these two categories of debt present unique challenges. Student loan debts can be either Federal or private. Federal loans are repayable and cannot be discharged in bankruptcy. Fortunately, Federal lenders offer repayment assistance programs to assist debtors with financial hardships in paying back their loans. If the student loan is privately held, the debt is likely unsecured. This does not, however, imply that it will be regarded similarly to other unsecured debts. The bankruptcy court will likely only permit the discharge of a private student loan under Chapter 13, and not under Chapter 7.Tax debts are severe, and the IRS takes them seriously. Tax payment is a civic duty, and only in exceptional instances is tax debt dischargeable in bankruptcy. Even so, you will likely be required to file Chapter 13 bankruptcy. Fortunately, the IRS also provides installment plans and tax debt settlement arrangements to settle unpaid taxes outside of bankruptcy.
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