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Types of Debt in a Bankruptcy Case

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Secured? Unsecured? Priority? There are many nuances in bankruptcy and many terms that have a unique legal meaning in bankruptcy law. Depending on which chapter filed, each type of debt receives different treatment based on its status as either secured, unsecured or priority.  Because bankruptcy law is so detailed, it is best to contact an experienced Merrillville bankruptcy attorney at Whitten & Whitten to help answer your questions and help you file your case.

Secured Debts

Secured debts are those which are guaranteed by collateral. For example, if a bank loaned you money to buy your car, the bank has a security interest in your car. If you default on your car loan, it is possible for the bank to take back its collateral, your car. If you file for bankruptcy, the bank is a secured creditor and has a valid lien on the car.

The debtor may choose to keep the collateral, such as a car or house, however the debtor must pay the lender the amount owed. At this time a reaffirmation agreement is made, which is an agreement between the lender and the debtor in which the debtor will keep the collateral and pay the lender.

If you filed a Chapter 7 bankruptcy case, a secured creditor can collect the amount that is owed by repossessing or foreclosing on the property. To do so, the secured creditor generally needs to obtain a court order before repossessing or foreclosing on the property if a bankruptcy case has been filed. Visit our webpage for additional information on protecting property in bankruptcy.

Unsecured Debts

Unsecured debts are those you owe which are not guaranteed by collateral. Examples of unsecured debts are unpaid credit card balances and unpaid cell phone balances. In a Chapter 7 bankruptcy case, if there are assets that are not secured, an unsecured creditor can file a claim to recover some of the money they are owed.

Priority Debts

Priority debts are those that receive special treatment under 11 U.S.C. § 507 of the Bankruptcy Code. Priority debts are usually unsecured but because of their importance, they are treated differently than general unsecured debts. The most common types of priority debts include:

  • Claims for child support obligations;
  • Taxes;
  • Claims for wages; and
  • Administrative expenses.

In a Chapter 7 bankruptcy case, if the trustee collects money from the debtor, priority claims are paid before unsecured claims, Additionally, in a Chapter 7 case, some types of priority debts are not dischargeable, such as most types of taxes and domestic support obligations.

In a Chapter 13 bankruptcy case, the repayment plan must provide that all priority claims be paid in full. Generally, the only exception to full repayment of priority claims is if a priority creditor agrees to different treatment of the debt.

Merrillville Bankruptcy Attorney Can Help Answer your Questions

Whitten & Whitten have experienced Merrillville bankruptcy attorneys who will help you sort through the debts you owe and help you understand the impact a bankruptcy case can have on your debts. Contact us online today or by calling 219-756-0555 to schedule a free consultation.

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