Secured vs. Unsecured Debts in Bankruptcy
When considering filing for bankruptcy in Ohio, it is important to understand what kind of debts you have and how they can affect your case. You may be able to have some of them discharged through bankruptcy, while you may be required to pay back the full amount of other debts. The types of debt you have can even affect whether or not you are eligible for bankruptcy, and if eligible, what kind of bankruptcy you can file.
The Ohio bankruptcy and debt defense lawyers at Amourgis & Associates, Attorneys at Law have decades of experience helping people navigate the bankruptcy process and eliminate their debts. We can help you find your financial footing again and get the debt collectors off your back. For more information on our bankruptcy services, contact our office for a free initial consultation.
What Is Secured Debt?
Secured debt is a type of debt that requires you to put up collateral before you can receive credit. This collateral “secures” the debt by giving a creditor some type of property they can sell or take possession of if you do not pay the loan. Typically, the collateral in a secured debt is whatever you are using the credit to purchase, though this is not always the case.
Some common examples of secured debts include:
- Home mortgages
- Home equity loans and lines of credit
- Car, motorcycle, and boat loans
What Is Unsecured Debt?
Unsecured debt doesn’t require you to put up any collateral before you receive your money. These loans are generally riskier for creditors, but the loans can offer higher returns. While unsecured debts do not require the borrower to put up any collateral, creditors can still try to collect from the borrower’s assets if the borrower fails to pay the loan.
Examples of unsecured debts include:
The Treatment of Secured Debt in Bankruptcy Court
Secured debt is treated differently than unsecured debt in bankruptcy court, and can even be treated differently depending upon what type of bankruptcy case you file.
With secured debt, the creditor’s interest will be protected by the bankruptcy court. You can’t, for example, take out a mortgage loan, file bankruptcy, and expect that the bankruptcy court will strip the mortgage from your house and leave you with a free house. Instead, the bankruptcy court will protect the creditor’s interest, and would potentially allow the creditor to foreclose on its mortgage.
One way that secured debt can be handled in bankruptcy court is a “reaffirmation agreement,” where after you file bankruptcy, you make an agreement with the lender to continue or restart payments on the secured debt. This is an entirely new agreement, where new and different terms can be negotiated. A reaffirmation agreement is an effective device that may allow you to keep your home or car in bankruptcy.
In Chapter 13 bankruptcy cases, the court also has the power to force a secured creditor to change the terms of the loan. This is called a “cram down” – where the court “crams” new loan terms “down” the throat of the creditor against its will. This can significantly change the amount of the loan and is especially common in vehicle transactions. As an example, if you qualify for a cram down, a cram down can be used to have the secured portion of an auto loan re-calculated based upon the existing value of the vehicle, rather than the value at the time you took out the loan. If, for example, you bought the vehicle and the loan is calculated on an original value of $30,000, and the vehicle is now only worth $15,000, the cram down terms would be calculated on the $15,000 current value (reducing payments), rather than the $30,000 original value – saving a significant amount of money.
It is possible to use these sorts of devices to keep your home or vehicle and still get the benefit of a “fresh start” from the bankruptcy court – please consult with one of our attorneys today.
The Treatment of Unsecured Debt in Bankruptcy Court
Unsecured debt is treated differently depending upon the type of bankruptcy you file. In Chapter 7 cases, most unsecured debt is discharged, and you do not repay it. Exceptions include unsecured tax debts, student loans, and child support, each of which is difficult to discharge. While Chapter 7 generally discharges 100 percent of the eligible unsecured debt, it is more difficult to retain your home or vehicle through the process. So Chapter 7 is not the best choice for everyone.
In a Chapter 13 case, you end up re-organizing your debt with the help of the bankruptcy court, repaying a portion of your debts over the course of a multi-year plan. The percentage of unsecured debt that you have to repay varies depending upon your circumstances but can range all the way from 100 percent down to a fraction of a percent. If you complete your plan by making all of your payments, then the remaining unsecured debt is discharged.
If you want to talk further about what bankruptcy chapter would potentially meet your goals, give us a call.
Talk to an Experienced Debt Defense Attorney in Ohio Today
Do you have questions about secured debt vs. unsecured debt and how they may affect your bankruptcy case? Contact Amourgis & Associates, Attorneys at Law today to speak to an experienced Ohio bankruptcy and debt defense lawyer about your options for dealing with your debts.
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At Amourgis & Associates, Attorneys at Law, we only represent consumers. We fight for regular people who have been seriously hurt in accidents. We fight for people who are being crushed by overwhelming debt and need a fresh start. We fight for individuals and families. Never businesses. Never insurance companies. We are loyal to the consumer.
