Assessing Your Bankruptcy Debt
In a bankruptcy, debts are first divided into two types—dischargeable and nondischargeable. A dischargeable debt is one that the bankruptcy laws allow you to discharge, or cancel. The best examples of dischargeable debts are the money you owe on credit cards, such as a Visa, MasterCard, or department store cards, and medical bills. Most consumer debts are dischargeable in bankruptcy, and these are the types of debts that lead most people into a situation that requires them to file for bankruptcy. If you have several credit cards and you charge them all up to the limit, it is easy to get in over your head.
A nondischargeable debt is one that you will still owe after the bankruptcy is completed. Examples of nondischargeable debts are:
- student loans
- child support
- spousal support
- delinquent taxes
- some court-ordered judgments
- debts arising from fraud (such as providing false credit application information or obtaining credit with the intention of filing for bankruptcy to avoid payment)
Debts are also divided into two other categories—secured and unsecured. A secured debt is one that can be viewed as attached to a particular piece of property. The property that secures the debt can be taken by the creditor to pay the debt. The prime example of a secured debt is a mortgage. The mortgage means that if you do not pay the money you borrowed to buy your house, the lender can take your house. Most car loans also include a financing statement, which is essentially the same as a mortgage. If you do not pay, the lender gets your car.
An unsecured debt is not tied to any particular piece of property. Most credit card loans are unsecured. If you do not pay, the bank cannot seize any particular piece of property (at least, not without suing you and trying to attach your property later to satisfy the debt).