While filing for bankruptcy you will be required to list all the creditors (people and businesses) to whom you owe money. Secured and unsecured creditors have separate sections in the bankruptcy petition.
In a secured debt, collateral is required. So, if you fail to repay the debt, your creditor can repossess your car or house to make up for the owed money. However, the debtor will be required to pay the deficiency (difference), if the creditor is able to sell the collateral for less than the money that is owed.
In an unsecured debt, there is no collateral required. In it, the creditor’s security is his ability to destroy the debtor’s credit. Items like signature loans, medical bills and most of the credit cards are included in it. Occasionally, an item (jewelry or furniture) purchased using the credit card can be collateralized.
In Chapter 7 bankruptcy, unsecured creditors are discharged without any payment. In cases where the debtor, filing for bankruptcy, possesses a non-exempt property which can be surrendered for liquidation to the trustee, the unsecured creditor will get paid. In Chapter 7, a secured creditor can be made an unsecured creditor by the surrender of the collateral back to the creditor. In case the payments are up-to-date, the debtor might reaffirm and choose to continue to pay the secured debt.
In Chapter 13 bankruptcy, a debtor is given an opportunity to bring current late payments on secured debts. Depending on the debtor’s financial situation, the unsecured creditors are paid a portion of the owed money. In many situations, secured debts can be divided or bifurcated into two debts – secured and unsecured. This can prove to be highly advantageous if the debtor is paying a meager amount to unsecured creditors.
It is very important to know about paid and unpaid debts to create a successful bankruptcy plan. Thus, you should contact the best bankruptcy attorneys for proper guidance. You can visit Recovery Law Group or call on 888-297-6203 to consult the Recovery Law Group, the best bankruptcy attorneys of Los Angeles & Dallas, TX.