Forms of Debt
Debts are classified as either unsecured or secured. Unsecured debts are the most prevalent source of debt among those who file for bankruptcy. Medical expenses, credit card debt, certain loans, and even student loans are unsecured debts. The term ""unsecured"" refers to the fact that these debts are not secured by any asset or collateral. These are instead granted based on a pledge of repayment. In general, unsecured debts are the simplest to discharge in bankruptcy, and can typically be handled under either Chapter 7 or Chapter 13 protection.
Secured debts are those that are backed by an asset or collateral. In the event of default, the lender has the right to seize and liquidate the asset to satisfy the debt. Examples of common secured debts include mortgages and auto loans. If the borrower defaults on these loans, the lender can foreclose or repossess the collateral. In bankruptcy, secured debts are more complicated because the borrower must repay the debt in order to retain the property. These are best handled through Chapter 13 bankruptcy, in which the debtor develops a repayment plan.
Not All Are Equal
It is essential to recognize that not all debts are equivalent. In order to avoid asset liquidation or wage garnishment, it may be necessary to repay even those loans that are considered unsecured. For example, both tax arrears and student loan debts are unsecured. However, both of these obligations are ordinarily not dischargeable in bankruptcy. In certain instances, these may be included in a filing, but there are very stringent rules governing their admissibility and inclusion. Moreover, in the majority of cases, these are mandated to be included in a Chapter 13 case if they become eligible for filing. Additionally, there are some debts that cannot be discharged under any circumstances. Child support arrears, delinquent court fees, and payments for criminal negligence are never eligible for a discharge.""
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