Will all of my debts be canceled in bankruptcy?

debt imageFor your debts to be canceled in bankruptcy will depend largely on the kind of debt that you have. There are two basic types of debts that exist: secured and unsecured debt.

Secured vs Unsecured Debt

A secured debt exists when the debt has an asset serving as collateral if the debt is not repaid. For example, for most people, a house or car note that goes unpaid will result in foreclosure or repossession. Unsecured debt however, does not have any collateral supporting the debt. In these instances, the creditor does not have any real legal rights to take any of your assets if the debt is unpaid. Credit cards or medical bills are examples unsecured debts.

Eliminating Unsecured Debt

A chapter 7 bankruptcy is a great way to eliminate unsecured debts. On the other hand, security agreements that pledge collateral, such as your car or your house, cannot be canceled in a chapter 7 bankruptcy. A chapter 13 bankruptcy can also be a great option for those that want to restructure a more favorable debt payoff plan. For example, the repayment obligations might include a longer repayment timeframe or a lower interest rate.

It is important to note that some kinds of debts are immune from both a chapter 7 and a 13 bankruptcy. For example, student loans, alimony, child and spousal support, and tax debts that have come due within the last three years, are rarely cancelled. These are referred to as priorty debts. Priority debts  are ones that the government has determined that as a matter of public policy, should not be canceled.

Which is Right For You?

When considering bankruptcy as an option, it is important to assess your finances carefully before making the final decision. David Packard, a board-certified bankruptcy attorney in San Antonio, offers free consultations to help people analyze these kind of decisions. 



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