Multiple kinds of debt from bankruptcy perspective
Florida residents who are considering filing for bankruptcy might like to know more about what happens to their debts through this process. How they are handled depend upon their classification and the particular bankruptcy chapter that is being used.
From a bankruptcy perspective, creditors fall into three classes: priority, secured and unsecured. Priority debts must be paid off first and are generally not subject to discharge. They include things like alimony, child support and certain tax obligations. Secured debts are those with respect to which the creditor holds collateral, such as a car loan or a mortgage. When no collateral safeguards a debt, a debt is unsecured. This includes credit card obligations and medical bills, for example.
When filing for Chapter 7 bankruptcy, a person may not have any assets to pay unsecured creditors with. If there are non-exempt assets, however, they are liquidated by the trustee and used to pay off those creditors.
In a Chapter 13 bankruptcy, debtors can restructure their unsecured obligations through a repayment plan that lasts for a period of either three or five years depending upon the debtor’s income and other factors. This chapter does not require the liquidation of any assets, but it is only suitable for people who have a reliable source of income. The plan must be approved by the bankruptcy court.
Chapter 13 can thus be an appealing option for people who qualify. In many cases, homeowners can restructure the terms of their future mortgage payments if they are able to catch up with past due amounts. An lawyer can outline the eligibility requirements when discussing other debt relief alternatives that might be available for a particular client.