The Difference Between Secured and Unsecured Debts

Bankruptcy is often considered a helpful solution for those who are buried in debt and need to save their finances. However, the court may treat you differently depending on the type of debt you owe your creditors. For example, a person with a large amount of secured debt could lose property in the event of bankruptcy. If you are facing the decision to file for bankruptcy, it is important to learn the difference between secured and unsecured debts.

Secured debts are considered collateral for the debt you owe a creditor, and the creditor has the right to seize the asset if you fall behind on payments. For example, a mortgage loan is secured by your home itself. An unsecured debt does not provide creditors with any collateral for your debt. Credit card debt is the most common unsecured debt. If you fall behind on payments, the creditor does not have the right to seize your assets, but they do have the right to take alternate action to encourage payment. These actions can include hiring a debt collector, suing to garnish your wages, or suing to put a lien on your assets.

According to an article from the law office of Ryan J. Ruehle, unsecured debt seems like a less immediate threat to financial stability, but it can still present a serious danger. This is because some unsecured debts, such as student loans, cannot be discharged during bankruptcy.

Bankruptcy may seem like the only option if you are facing more debt than you can handle, but it is important to consult a bankruptcy lawyer to help determine your legal options and decide which option is best for your situation.

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When Are Debts Dischargeable?

Filing for bankruptcy is often viewed with a negative connotation, but generally it is a helpful last resort for those who have no other options and wants to save their finances and start anew. There are many types of bankruptcy, and depending on your circumstances not all debts can be discharged by the bankruptcy court. Knowing which debts are dischargeable and which are not can help you in effectively managing your outstanding debts.

Debts that are deemed dischargeable are those that the court dismisses through the bankruptcy process in order for the debtor to not worry about paying the creditors back anymore. However, there are a lot of things that can be barred from being discharged; certain types of debts are non-dischargeable. These non-dischargeable debts include (but are not limited to) student loans, taxes, domestic support, personal injury, fines and restitution. It should be noted that bankruptcy laws are complex and depending on the types of bankruptcy you have filed, what is dischargeable or not may rely upon a very small distinction.

Some debts can become non-dischargeable if the creditor has filed a lawsuit against you and the bankruptcy court has determined it as non-dischargeable. Evidence of debt due to fraud, embezzlement, breach of trustee duty, theft, and other criminal reasons are grounds for the bankruptcy court to regard the debts as non-dischargeable. Also, failing to list all of the debts in time can cause the whole debts to be denied of discharge and is even considered as a federal crime.

All in all, it is always better to consult a bankruptcy lawyer to help you determine all debts that can be considered dischargeable and debts that are not. Following the rules and proper procedures also help in ensuring your discharge is not denied. Considering filing for bankruptcy requires important information not only about which debts can be lifted off your shoulder but most importantly how it works. Find legal help to make sure you will have a successful result and bounce back from this financial problem.

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