Bankruptcy filers are known to owe money on different credit lines. Bankruptcy courts categorize debts into two: The secured and unsecured debts. Despite everyone’s bankruptcy case being different, it is essential that you know the debt types and how bankruptcy courts treat them. With this, you will be in a position of predicting how your finances will look like whenever you recover from bankruptcy. A Mesa Bankruptcy Attorney will be in a position to give you a complete picture of how the bankruptcy court will handle the individual debts.
Secured debt refers to a property secured debt type that a creditor can get hold of whenever you fail to make payment. Homes always secure mortgages. When you fail to pay back the loan, you risk losing your home, which they can always sell to generate funds to repay the debt. There are also secured types of debts you do not concur with apart from the voluntary security agreements. A good example is when you have taxes that you have not paid. There is a possibility of the Internal Revenue Service claiming a tax lien from the property. Your personal ability to pay back the secured debt will still receive a bill of up to $15,000 for Chapter 7 bankruptcy. The creditor will still have the authority to confiscate the house to help in settling the debt.
When you fail to pay for your mortgage, there is still the possibility of the lender foreclosing on the house and getting rid of it after completing the bankruptcy case. When the worth of the property does not surpass the debt amount, you will never get sued for the pending balance. It will be vital that you inform the creditors and the court how you intend to manage secured debts according to your secured debts. The easiest decision will be to return the property. In case giving up the property is not a choice, you will be forced to communicate with the debtor immediately you agree with the creditor whether to hold onto the house and make payments.
Unsecured debt refers to debts that are secured by any collateral against you, such as medical bills, credit card debts, or lawsuits. An Unsecured creditor will never take any asset to fulfill his debts. Instead, he will file a lawsuit and ensure it is successful before he embarks on collection proceedings. Trustees will always take any non-exempt property when you have one. They will sell it and give out the proceedings to the unsecured creditors. An Unsecured creditor is always paid from the order of important debts.
Priority debts refer to dents that are refunded first due to different public reasons. It can include spousal support, child support, tax debts, and money you owe to employees. In case there is any money left after settling your priority debts, it will be directed to other unsecured creditors like credit card firms. There is always a possibility that you may still owe some unsecured debts at the end of the bankruptcy case. Debts such as student loans, child support, and different tax debts can never be discharged in bankruptcy.
Unsecured debts will turn into secured debts when you fail to pay for them. A medical provider or a credit card holder can easily sue you for the balance you still owe them and come up with a judgment against you. They can record the ruling as a lien against your house. The IRS does have the mandate of recording tax lien against your personal property or real estate without having to sue you when you fail to pay your federal income taxes.
Bankruptcy is also capable of turning unsecured debt that had been turned to a secured one by the creditor into an unsecured one. However, this does not happen frequently. It is always advisable to file a bankruptcy case before your creditors decide to turn your unsecured debts into secured debts.
General unsecured debts refer to unsecured debts that do not fit into any of the “priority” debt categories. General unsecured creditors are always paid on a pro-rata basis and will always receive the same percentage as the owed balance. Good examples of unsecured and non-priority claims include medical bills, utility bills, student loans, and back rent. They are loans that do not require health club dues, collateral, tax debts, and union dues.
Priority debts refer to debts that the law considers unique due to varying policy reasons for treating that specific debt favorably. For example, income taxes and child support are priority debts. Congress has decided that bankruptcy should not discharge child support or prevent its collection due to the high-value congress places on child support payment. Income taxes are regarded as a social obligation that we should never avoid easily.
Whenever a secured creditor forecloses or repossesses something you own and sells it off to credit the proceeds from the sale against your balance, the remaining debt will be unsecured. Whenever a creditor requests you to surrender your property voluntarily, they will never tell you that they will be selling it at auction and will come after you for any due amount. It is common for people who voluntarily surrender their property to get a bill of up to $15,000.
When most of your debts are categorized as general unsecured debts, you will lean towards filing Chapter 7 bankruptcy cases. It is because it usually discharges the debts quickly. In Chapter 13 case, you will always have to make some payment of your general unsecured debts. Discharge of the pending unpaid portion will never happen until the close of a three to a five-year payment plan.
At Arizona Bankruptcy Solutions, we are experienced in business law, family law, civil disputes, criminal defense, bankruptcy, real estate, estate planning, and probate and elder law. We have a team of professional and skilled lawyers to help you out. You can visit https://azbankruptcysolutions.com/mesa/ to learn more about us and what we offer.
Arizona Bankruptcy and Debt Solutions
1013 S Stapley Dr.
Mesa AZ 85204
Filing for bankruptcy isn’t the right solution for everyone. The determination of whether or not bankruptcy is an appropriate debt relief solution for your will be made based on a number of factors including the type and total level of your debt. Use this form to schedule an appointment with one of our bankruptcy attorneys. The consultation is completely free and there is no obligation.