How Debts Are Handled Differently In Bankruptcy

: Reese Baker & Associates

  Filed under: Debt

debtOnce you have entered into a Houston bankruptcy you are probably not too sure just how your debts are going to be handled. If you have obtained the services of a quality bankruptcy attorney this individual will guide you through the entire process, and explain fully what is going to happen with your debts. First you need to realize that there are two common chapters of bankruptcy, and you will have to be eligible for either one of these in order to take on a bankruptcy proceeding.

Different Types of Debt

It has to be determined how your debts are categorized. Whether they are secured debts or unsecured debts. If you are filing for a Chapter 7 bankruptcy then in many cases the unsecured debt will end up being discharged if there are no funds available to cover these.

In a Chapter 7 bankruptcy you will more than likely end up having to pay a portion of your unsecured debt, but in most cases it is not the full amount. In a Chapter 13 bankruptcy the debts are categorized by priority debt, secured debt, and unsecured debt. The priority debts will be handled first to ensure that they are paid off and then following this is the secured debt. Finally, the unsecured debt is at the bottom of the payback list, but will include some form of payment if possible.

Secured debts are considered to be most important as there is probably some sort of security against these. These would be items like your car for example, with the vehicle being held as the security, and with your mortgage it would be the house that is your security.

In a Chapter 13 bankruptcy a repayment plan is set up based on your total debt load and the amount of disposable income that you have that can be put toward your debts. This is then divvied out by the bankruptcy trustee amongs the creditors. In a Chapter 7 bankruptcy the priority or the secured debt is handled first and there is a chance that you will lose some of your assets. When it comes to the unsecured debt then these most often will just be discharged.

The anticipated outcome is that you want to get back on financial track once again, and bankruptcy can be a really good option to help you do this. You want all of your debt under control. No matter whether it gets discharged or whether the bankruptcy provides a way for you to meet your debt obligations without pressure, it works to your advantage.