Bankruptcy is a strong resource in fighting financial debt and allowing applicants to take control of their finances. People have some misconceptions about bankruptcy, including what kind of debt bankruptcy can get rid of. Unfortunately, bankruptcy cannot discharge all types of debt, so which kinds can it eliminate?
Even though bankruptcy cannot take care of all forms of debt, more than 650,000 people filed for bankruptcy in 2020. There are two categories of debt that a person can accrue: secured and unsecured debt.
What is the difference?
Secured debt is a type of debt that a consumer can develop that has some form of collateral attached to it. Common examples of this form of debt include car loans and home loans. These debts are something that if the borrower defaults on the payments long enough, the financial lender has some asset they can collect to recover their losses on the loan.
Unsecured debt is a form of debt that does not have any collateral tied to it and is much more common for a consumer to have. This debt includes credit card debt, medical debt, and debt from late utility bills.
How does bankruptcy affect them?
Bankruptcy, whether you choose Chapter 7 or Chapter 13 bankruptcy, can only discharge unsecured debt. If someone has an overwhelming amount of credit card debt or medical debt, bankruptcy could be a useful resource to take back control of their finances. If you are considering bankruptcy and want to know more about how it can benefit you, consult with an experienced bankruptcy attorney for more information.