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The Difference Between Secured And Unsecured Debt

When you file bankruptcy a lot of attention is given to the distinction between secured and unsecured debt. Most people who find they need to file for bankruptcy attribute the need to having a large amount of unsecured debt. Unsecured debt is any debt for which collateral was not pledged as a part of the promise of repayment. Credit cards are the most common example of unsecured debt but there are other forms as well; such as signature and payday loans, and medical bills. The reason the difference between the two types of debt becomes important at bankruptcy is because depending on the chapter you file, you may have to repay some of your unsecured debt.

A bankruptcy filed under Chapter 13 requires the debtor to repay at least a portion of their unsecured debt, but in a Chapter 7 the debtor is allowed to eliminate their unsecured debt. Eliminating unsecured debt is more desirable than having to pay back even a portion because:

  • The monthly payments that were being made toward unsecured debt will no longer be required to be made, which puts more money in the debtor’s pocket.
  • A Chapter 7 case usually lasts between 6 to 9 months, but a Chapter 13 case (where unsecured debt is repaid in part) can take up to five years. It is the rare consumer who wants to be involved in their bankruptcy case for 60 months!

The key to being able to file a Chapter 7 instead of a Chapter 13 lies in the amount of income you make, as it compares to your secured debt. Secured debt is debt that has collateral pledged as security for the loan, like a car or home loan. When those types of purchases are made the vehicle you buy or the home you give a mortgage in are not technically your property until the loan is paid in full. Until that time the lender has an interest in the collateral, and this is why your home can be foreclosed on or your car repossessed. Debts that are secured by property are usually reaffirmed in the bankruptcy, or the debtor makes voluntary payments on the debt. This is because if the payments are not made, even with a bankruptcy, the lender can take the actions mentioned (foreclosure or repossession) because they have a security interest in the property. For a more thorough explanation, call our office and schedule an appointment. We will make sure you have a complete understanding of your debt before we file your case.

For more information about bankruptcy and the difference between secured and unsecured debt, contact us at We will help by coming up with solutions that work for you.

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