There are two types of debt: unsecured and secured. Unsecured debt is debt for which you have simply promised to pay back a loan, but for which you have not pledged any real or personal property as collateral. Secured debt is different because the debt is backed by property or a lien. It is important to speak with a bankruptcy attorney about any questions you may have.
The rules for discharged debt vary depending on whether or not you are in bankruptcy, the exemptions that may apply in your case, and the chapter of bankruptcy under which you are filing. Here are some examples of secured debt and the effect that bankruptcy may have on them:
Most homes are burdened with a mortgage, which is a secure debt. This means the lender has the right to take the home back if you miss your payments. Discharging your home mortgage through bankruptcy will alleviate you of your legal responsibility to repay this debt. However, this also opens the door for the creditor to take back their collateral—the house—if you don’t pay the debt.
Most people cannot buy a car outright, so they give the lender a security interest in the car. Again, the creditor may be able to repossess the property because bankruptcy does not take away the creditor’s right to the property.
Boat loans are another example of a type of loan that is typically secured by property. Any large item that is secured by property or a lien can be secured debt.
The federal bankruptcy law is complex, so having an experienced attorney in your corner is the best way to protect your rights. Cutler & Associates, Ltd. is a bankruptcy law firm that has been helping residents in the Chicago area for more than 20 years.