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While many people understand the basic idea behind filing for bankruptcy, few people actually understand some of the key concepts. There are two outcomes to a bankruptcy case, a discharge or a dismissal. A discharge is the desired outcome, which involves having their debts resolved and liability over removed. A dismissal is the closing of the case, in which there is not resolution to the debt. As people pursue bankruptcy there is still much to learn about how a discharge works.
Types of Debt
Debts fall into one of two categories, unsecured or secured. Unsecured debts are the most commonly held source of debt among bankruptcy filers. Medical bills, credit cards, some loans and even student loans are considered unsecured debts. The word "unsecured" refers to the fact that these debts do not hold any asset or collateral against the loan. Instead, these are given based on a promise of repayment. In general, unsecured debts are the easiest type to resolve in bankruptcy and can usually be managed in either a Chapter 7 or Chapter 13 bankruptcy.
Secured debts are those that hold an asset or collateral against the loan. In the event of default the lender can seize and liquidate the asset in order to satisfy what is owed. Common examples of secured debts are mortgage and car loans. In these loans, the lender can foreclose or repossess if the borrower is not paying what is owed. Secured debts are more complicated in bankruptcy in that the borrower must repay what is owed in order to keep the property. These are best managed in a Chapter 13 bankruptcy, whereby the debtor develops a plan for repayment.
Not All Are Equal
It is important to note that not all debts are equal. Even some that are considered unsecured may still be required to be repaid in order to avoid asset liquidation or wage garnishment. For example, back taxes and student loan debts are both considered unsecured. However, both of these are required to be repaid and are generally not eligible for bankruptcy. While there are some cases in which these may be included in a filing, there are very strict rules as to their qualification and inclusion in the case. Further, it is most often the case that these are required to become part of a Chapter 13 case in the instance they do become eligible for filing. Also, there are some debts that are not eligible for bankruptcy under any circumstance. Back due child support, unpaid court fees or criminal negligence payments are never eligible for a discharge.
The Walters Dunn law firm aims to help local residents resolve their debt issues and achieve a financially healthy future. They provide high quality legal representation that helps lower monthly debt payments, stop wage garnishment,prevent foreclosures and repossessions, and stop calls from creditors. The Walters Dunn bankruptcy lawyers in Austin have many years of experience in all aspects of Chapter 7 and Chapter 13.
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