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What is the difference between secured and unsecured debts?

On Behalf of | Nov 9, 2022 | Chapter 13

If your debts become so burdensome that you know paying them off will not be possible, filing for Chapter 13 bankruptcy may offer you a solution. Under Chapter 13, you will have a three to five-year period to pay some of what you owe. Whether you pay all or some of a debt or have a bankruptcy judge discharge it will depend on what type of debt you have.

Forbes explains that you will pay your priority debts first. Common examples include unpaid taxes, alimony and child support. From there, your bankruptcy plan will determine how to handle your secured and unsecured debts.

Secured debts

To take out a secured loan, you need to put up collateral. Many people apply for secured loans to pay for a home or an automobile. Secured debt is what you owe on this kind of loan.

Chapter 13 bankruptcy does not discharge secured debts, but it can give you time to catch up on overdue loan payments during your bankruptcy period. Bankruptcy may help restore your financial condition so that you can resume normal payments to your creditor after you emerge from bankruptcy.

Unsecured debts

You do not back unsecured debt with collateral. This means the creditor cannot take your property if you fail to pay back the debt. Bankruptcy courts place unsecured debt last in payment order. Unsecured debt usually consists of unpaid credit card bills, rent and medical bills.

Bankruptcy courts generally look at the disposable income of the bankruptcy filer to determine how much unsecured creditors should receive. They may get a full or a partial payment, or perhaps no payment at all if a court discharges the debt. So even if your outstanding bills seem insurmountable, Chapter 13 provides options to relieve your debt load and help you return to financial solvency.

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