Difference Between Secured And Unsecured
In bankruptcy, it is important that you understand the difference between secured and unsecured debts. A creditor is “secured” if it has a physical item, like a car or home, that is collateral for a loan.
Mortgages Are Secured – Credit Cards Are Not
These loans are secured by use of a mortgage or lien to the loan you received. By contrast, unsecured debts, such as credit card debts and medical bills have no collateral. Bankruptcy treats secured and unsecured debts in different ways:
- Unsecured debts may be discharged with a Chapter 7 bankruptcy. Chapter 13 bankruptcy will also typically result in a discharge of unsecured debts, but only after the completion of a Chapter 13 debt repayment plan that typically lasts for 36 to 60 months.
- With a Chapter 7 bankruptcy, you can reaffirm secured debts, and you must keep making payments on the debts.
- Bankruptcy can eliminate your obligation to pay any additional money on a secured debt if you decide to give back the property. Generally, you cannot keep secured property unless you continue to make payments on the debt.
- A few exceptions apply. For example, you may be able to strip a second mortgage lien with a Chapter 13 bankruptcy in limited circumstances and still keep your home, but only if the value of the home is less than you owe on your first mortgage.
- If you are eligible for Chapter 13 bankruptcy, you can force secured creditors to take payments over time in the bankruptcy process (rather than making immediate payment in one lump-sum for past-due debts). This allows you to make up mortgage arrears over time.
Help From An Experienced Bankruptcy Lawyer
I am attorney Steven F. Bilsky, and can help. I have more than 39 years of experience in bankruptcy law. I have helped thousands of clients in Tennessee obtain debt relief. I’ll explain how bankruptcy will treat your secured and unsecured debts and the best plan for your circumstance.