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What Benefit Does Chapter 13 Have For Unsecured Debts?

Debts are classified as either secured or unsecured. Secured debts are debts that are tied to a piece of property. Common types of secured loans include mortgages and auto loans. When you take out these types of loans you put up your house as security that the mortgage will be repaid, and the lender retains a security interest in the house until the loan is paid in full. The same is true for auto loans, where the car being purchased is given as security for the loan. While you are actually in possession of the vehicle and driving it around, until it is completely paid for the lender has an interest and can repossess if payments are not made. On the other end of the spectrum is unsecured debt, which is debt that is incurred without putting up any property as security for the loan. The most common forms of unsecured debt are credit cards, signature loans, and medical bills.

The way these two types of debts are treated in bankruptcy depends on what chapter of cased you file. A chapter 7 will eliminate unsecured debt in its entirety, but the same is not true in a chapter 13. In a chapter 13 your unsecured debt is partially repaid. This does have some benefits, such as:

  • Repaying a part of your debt will be reflected on your credit report.
  • The lender might be more willing to loan to you again if they receive at least a partial payment.
  • Some secured debt is also impacted in a positive way when you file a chapter 13 and repay a portion of your unsecured obligations. For instance, you may have the ability to pay the value of your car rather than the balance owed, and this is not generally an option if you file a chapter 7.

Another difference between the two types of cases is that a chapter 13 lasts longer. Most chapter  7 cases are over in about 120 days, but a chapter 13 can last for up to 5 years. This difference makes it important to maintain employment that allows you to make the payments on a chapter 13, and also requires the debtor to stay on top of their payments for a longer period of time. For more information about the difference between unsecured and secured debt, and how chapter 7 and chapter 13 cases are different, call us today.

For answers to your questions about debt and bankruptcy, contact us at  www.DsouzaLegalGroup.com. We will give you the information you need to make a decision that makes sense.

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