In today’s age, many Americans are finding it difficult to pay all of their bills. According to some studies, credit card debt in America rose to $751 billion in January 2016. The average household has around $132,000 in debt ($15,000 of is it credit card debt). Today, it can be very easy to fall into debt and nearly impossible to get out of it. Many of the clients want to know which of their debts can be canceled through a bankruptcy, so they can get a fresh start.
To better understand the answer to this question, we must first understand the three types of debt that exist: secured, unsecured, and priority debts. Secured debt occurs when the debt has something serving as collateral, which may be repossessed if we do not pay that debt off. If a secured debt goes unpaid, the party that loaned the money has a right to take possession and ownership of the property that was used to secure the debt. An unsecured debt is simply when debt does not have an asset serving as collateral for the debt, such as medical bills and credit cards. So, if the unsecured debt goes unpaid, the party that loaned the money does NOT have a right to take possession any asset, because there was none offered when the debt was created.
Banks prefer to have their debts secured, and consumers prefer to have their debts unsecured. A bankruptcy will generally wipe out most of your unsecured debt and, unless you surrender the collateral, you end up paying for the secured debts. Priority debts and other certain kinds of debts are ones that the government has determined that as a matter of public policy, the debt should rarely be canceled. Some examples of this kind of debt include student loans, child support, and most taxes (especially those less than 3 years old). These types of debts are rarely canceled out through bankruptcy.
It is important to assess your financial situation carefully before making the decision to file for bankruptcy. When making this assessment, you will want to consider whether a Chapter 7 or a Chapter 13 Bankruptcy is better. If you are thinking about filing for bankruptcy, you may want to consult with a Board-Certified Bankruptcy Attorney so that your plan can best fit your financial needs.