Medical expenses are the most common cause of debt in modern America, followed by loss of income. Under these unforeseen, often unavoidable circumstances, even well-prepared people are often forced to file bankruptcy to save their homes, protect important assets, and put an end to stressful collection efforts. A bankruptcy discharges certain types of specified debts, reducing the amount of money the debtor is legally required to pay.
What type of debt is eliminated when filing for bankruptcy?
Most unsecured debts can be eliminated.
If you did not pledge personal property as collateral, your debt is unsecured. As unsecured credit is riskier for creditors, the debts oftentimes carry higher interest rates. Fortunately, most unsecured debts can be eliminated by a Chapter 7 Bankruptcy. Common unsecured debts include:
- Medical bills
- Utility bills
- Rent payments
- Credit card charges
- Health club membership
Secured debts can be discharged.
Secured debts are backed by collateral. Common secured debts include home mortgages, auto loans, and personal loans from finance companies. All of these require you to pledge a valuable asset, such as a car or home, as security against a loan.
Secured debts can be discharged during a Chapter 7 bankruptcy by one of the following methods:
- Surrender the collateral
- Pay the creditor
- Redeem the property
- Reaffirm the debt and continue making payments
How does bankruptcy help if it doesn’t eliminate all of my debt?
Ignoring debt or hoping for a spiraling financial situation to self-correct creates stress and hardship. Bankruptcy is one step towards resolving the problem, not a comprehensive solution. However, bankruptcy can reduce your monthly payments, limit annoying collection efforts, and provide an opportunity for you to begin building your credit again.
The Law Offices of Jeffrey Lohman, P.C. is considered a debt relief agency pursuant to federal law. We are attorneys who help people file for bankruptcy relief under the Bankruptcy Code.