Accruing personal debt can feel overwhelming and lead to financial instability, making debt relief alternatives a necessary consideration. In some cases, bankruptcy might be the only feasible option. If you find yourself in this situation and are considering filing for bankruptcy, it’s crucial to understand key aspects of the process. One important area to familiarize yourself with is the difference between secured and unsecured debts and how they are handled during bankruptcy proceedings. Fortunately, the following and a knowledgeable Rockland County Bankruptcy Attorney can assist you in navigating these intricate matters.
What is the Difference Between Secured and Unsecured Debt?
While it may not be immediately apparent, various forms of debt can be accrued. However, there are two primary types of debt: secured and unsecured. Secured debt is linked to a specific asset, known as collateral. This property can be repossessed by the creditor if you fail to make payments. The collateral essentially serves to guarantee that the creditor can recover their funds. Common examples include auto loans and mortgages.
In contrast, unsecured debt has no collateral property attached. Examples include credit card debt, student loans, and medical debt. Due to the lack of collateral, creditors are afforded fewer options to recoup their funds if you default. Consequently, obtaining unsecured loans often requires a higher credit score and typically involves higher interest rates.
How Are These Debts Handled During a Bankruptcy Case in New York?
When considering bankruptcy in New York, understanding how debts are handled in different chapters is crucial. Chapter 7 is a liquidation process in which assets are sold to repay creditors. If you wish to keep secured property like a car or a house, you generally must reaffirm that debt and continue making regular payments. Otherwise, the creditor has the right to seize the property, and your other assets may be sold to cover the outstanding debt. Most unsecured debts, however, are typically discharged at the end of your case, meaning you are no longer legally responsible for them.
In Chapter 13, all of your debts, whether secured or unsecured, are included in the process. Debts are categorized as priority or non-priority and then reorganized into a single monthly payment plan spanning three to five years. Unsecured debts usually receive a smaller portion of these payments, or sometimes none at all.
As you can see, bankruptcy can be a complex process. That’s why it’s crucial to consult with an experienced attorney. At The Lauterbach Law Firm, we recognize the challenges you face and are dedicated to helping you achieve the financial relief you need. Connect with our firm today for more information.
