What is Unsecured Debt?

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What Is Unsecured Debt?

Are you struggling to pay living expenses each month? Is dealing with unsecured debt causing you to lose sleep? Do you need help to get rid of debt?

Filing for bankruptcy relief can give you the fresh start you need to get back on your feet by getting rid of unsecured debt.

Everyone needs a helping hand from time to time. Congress enacted the Bankruptcy Code to help people who need debt relief.

You can file a Chapter 7 or Chapter 13 bankruptcy case to get rid of unsecured debt. It is not that hard to file a bankruptcy case. You can file a case without an attorney.

Upsolve is a non-profit company that helps people just like you find a solution to their debt problems.

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How Does Bankruptcy Get Rid of Unsecured Debt?

Bankruptcy is designed to help people get out of debt. By filing a bankruptcy case, you discharge unsecured debt.

A bankruptcy discharge eliminates your legal liability for an unsecured debt. In other words, you do not ever have to pay an unsecured debt that is discharged in bankruptcy.

Almost any unsecured debt is eligible for a discharge in bankruptcy. Therefore, you can get rid of most, if not all, unsecured debt by filing for bankruptcy relief.

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You Mean Creditors Cannot Sue Me for an Unsecured Debt if I File for Bankruptcy Relief?

No, a creditor cannot sue you for an unsecured debt that is discharged in bankruptcy. The bankruptcy prevents creditors from taking any actions to collect a discharged debt.

As long as the unsecured debt is discharged in your bankruptcy case, the creditor cannot ever sue you for the debt.

The creditor can sue you for the unsecured debt if you do not file for bankruptcy relief. A creditor could obtain a judgment lien for the unsecured debt.

Even if a creditor already has a judgment lien, you can get rid of the judgment lien in a bankruptcy case. Judgments are considered unsecured debt.

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What is Unsecured Debt?

Unsecured debt is a debt that is not secured by collateral. The creditor does not hold a lien on any of your property.

For example, a mortgage is a secured debt because the company has a lien on your home. A car loan is a secured debt because the creditor can take your car if you don’t pay the loan.

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What are Examples of Unsecured Debt Discharged in Bankruptcy?

Examples of unsecured debt that are usually discharged in a bankruptcy case include:

  • Credit card debt

  • Medical bills

  • Old utility bills

  • Old rent and lease payments

  • Personal loans

  • Payday Advance loans

  • Old cell phone bills

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Can I Get Rid of Student Loans in Bankruptcy?

Student loans are considered unsecured debt. However, student loans are not eligible for a discharge in bankruptcy.

A few debtors are eligible for a hardship discharge of student loans.

hardship discharge for a student loan is very rare. The requirements for a hardship discharge are extremely difficult to meet.

Most debtors have to pay student loans. When you get rid of the rest of your unsecured debt, student loan payments may not be as difficult to make.

You might be able to qualify for other student loan relief. The government has several options available for people who cannot pay their student loans.

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Are Personal Income Taxes Included in Bankruptcy?

Yes, personal income taxes are unsecured debt that you include in your bankruptcy. However, most taxes are not eligible for a discharge.

Like student loans, some personal income taxes are dischargeable in bankruptcy. You can get rid of income taxes if the taxes are old.

The income taxes have to be at least three years old to get rid of the taxes in bankruptcy. There are also a few other requirements for getting rid of taxes in bankruptcy.

The tax return must have been filed at least two years before the bankruptcy case is filed. The IRS must have assessed the taxes at least 240 days before the bankruptcy case is filed.

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Is Domestic Support Obligations Included in Bankruptcy?

Domestic support obligations include alimony and child support.

You cannot get rid of alimony or child support by filing a bankruptcy case. Filing bankruptcy does not forgive unpaid alimony or child support.

You can file Chapter 13 and repay past due child support and alimony through the bankruptcy plan. A Chapter 13 bankruptcy case gives you time to repay the past due payments.

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How Is Unsecured Debt Treated in Chapter 7?

You must list all debts in your Chapter 7 bankruptcy case. Debts that are not eligible for a discharge must be listed with all other debts.

The typical Chapter 7 case is finished in four to six months. You do not pay any unsecured debt that is eligible for a bankruptcy discharge.

Creditors cannot try to collect discharged unsecured debt. They cannot call you, send letters, or file lawsuits to collect unsecured debt that is discharged.

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How Is Unsecured Debt Treated in Chapter 13?

In a Chapter 13 case, you file a repayment plan. The repayment plan proposes to reorganize your debts into an affordable monthly payment.

Unsecured debt is included in your Chapter 13 plan. Unsecured creditors receive a payment from the Chapter 13 trustee. The payment is a percentage of their unsecured debt.

Unsecured creditors very seldom receive payment for all the unsecured debt you owe on the accounts. In many Chapter 13 cases, unsecured creditors receive pennies on the dollar through the plan.

When you complete your Chapter 13 plan, the remaining balances owed to unsecured creditors are discharged. The discharge does not apply to unsecured debt that cannot be discharged, such as student loans.

You can repay some unsecured debt through the plan that is not eligible for a discharge. For instance, you can repay income tax debt, alimony, and child support through the Chapter 13 plan.

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How are Secured Debts Treated in Bankruptcy?

The difference between an unsecured creditor and secured creditor is collateral. Collateral is property that you pledged as security for the loan.

If you do not pay a secured creditor, the creditor can foreclose or repossess the property. Filing bankruptcy does not eliminate the lien.

However, in a Chapter 13 bankruptcy case, you can catch up mortgage payments in your plan. You can also modify your car loan to make the payments more affordable.

In a Chapter 7 case, you must pay your secured creditors or surrender the collateral.

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You do Not Need an Attorney to File for Bankruptcy Relief

You can file a Chapter 7 or Chapter 13 bankruptcy case without an attorney.

Upsolve can help you complete the bankruptcy forms to file with the court. An attorney reviews the forms before you file them with the court.

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Are You Ready to Get Rid of Unsecured Debt?

If you are ready to get rid of your unsecured debt, Upsolve can help. You can get back on the road to financial well-being.

People file bankruptcy for many reasons. Unemployment, loss of a spouse, and medical debts are some common examples.

It does not matter why you cannot pay your bills. You can file for bankruptcy relief, even if you just got in over your head with credit cards.

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