In bankruptcy, some debts are priority debts, others are secured against your collateral such as a home or car, and some are not dischargeable. Know which debts fall into which category to protect yourself and your assets.
Many of my bankruptcy clients in Riverside and Orange County hesitate about filing bankruptcy because they’re worried about the nature or types of debts they have and what will happen to them if they file. As their bankruptcy lawyer I review their case and explain the various types of debts, the effects of any collateralization, the priority nature of some types of debts and whether the debts are dischargeable.
1. Secured Debts May Be Dischareable But Be Very Careful.
Before thinking about bankruptcy, you may have been doing everything possible to keep current on your home or vehicle. You may have made the decision that holding on to your home for the sake of your family is your absolutely highest priority. Or you may feel the same way toward your vehicle, because of work, family or personal necessity.
Chapter 7 allows you to keep your home and vehicles and still obtain a discharge. You are no longer legally responsible to repay your debts. However, because they are secured debts, you must continue to pay on them if you want to maintain possession. Once you’ve completed payments, whether on the mortgage or on the vehicle, you will receive your title free and clear. While there may be no need to pay on unsecured debts such as credit cards, be very careful about secured debts such as your home and car. In a sense you still have to pay to play.
Chapter 13 may involve not paying some creditors so you can pay the mortgage or car loan. You make monthly payments to the bankruptcy trustee and the amount varies depending on your obligations and the types of debt that you have. The payment amounts may be lowered depending on the amount of disposable income you have and the priority or type of debts you owe. Overall, bankruptcy usually allows you to focus your limited financial resources on these kinds of debts if they are your highest priority.
2. Debts You Want to Pay Despite Discharge Because of Personal Choice
Many clients are loyal to some of their creditors and want to repay their debts. For example, a credit union they’ve been working with for year or a family doctor for a medical debt. This personal choice is not required legally but out of a sense of loyalty and continued service. Some creditors in fact may require you pay the debt despite the discharge because they may refuse to provide service. If you choose to repay a debt regardless whether or not you file bankruptcy, there are safe ways to do so and very dangerous ones. There are time restrictions on when you can or cannot repay so please consult our Riverside or Orange County Bankruptcy attorney to review your particular case.
3. Priority & Non-Dischargeable Debts
The law creates legal distinctions and/or priorities among creditors, e.g., the IRS, State taxing authorities, support enforcement agencies, or student loan lenders. Some of these debts cannot be written off in bankruptcy.
But bankruptcy, in the vast majority of cases, will usually help you with even the most aggressive creditors, and even with debts that cannot be discharged. Sometimes it involves reasonable payment arrangements after completing a Chapter 7 case. Other times it requires paying these ” priority creditors ” before, or instead of, other creditors in a Chapter 13 case, while under continuous protection from the bankruptcy court. In either scenario, bankruptcy typically provides you a manageable way to handle these priority creditors and/or non-dischargeable debts.
