Lawyers Resolving Unsecured And Secured Debts In Bankruptcy

If you are struggling with debt problems and you’re looking into the possibility of bankruptcy, you will surely come across some complicated financial terms and concepts. One of the first such concepts you will face is the difference between secured debt and unsecured debt.

Do not let the complicated financial terms intimidate you, and do not handle these matters alone. With our competitive flat-rate fees and our more than 40 years of combined legal experience, the North Carolina unsecured debt attorneys of Wootton & Wootton, can help you through the bankruptcy process.

Call our office in Durham at 919-794-8660 or email us today for a free consultation! We offer consultations over the phone, through video conferencing or in person.

Secured Debt

A secured loan, as its name suggests, is a loan that has “security” for the lender, something that the lender can take from the debtor if the debtor is not paying the loan according to the lending agreement.

Usually a secured debt is secured by the asset for which the loan was issued. So, for example, most car loans are secured by the car itself. When the loan is not being paid off according to the lending agreement, the lender then has the right to regain possession of the car. Similarly, when a home mortgage is not being paid by the debtor, the lender can foreclose on the home.

As a general rule, most secured debts cannot be discharged outright through bankruptcy. However, these debts can be reorganized through a Chapter 13 bankruptcy, and some secured debts can be exempted from the bankruptcy process in North Carolina.

Unsecured Debt

Conversely, unsecured debt is not backed by any asset. This means that there is nothing the lender can attach to — or take from the borrower — for compensation if the borrower isn’t paying. Examples of unsecured debt include:

• Consumer credit card debts
• Medical bills
• Unsecured personal loans
• Payday loans
• Cellphone bills
• Legal bills

As a general rule, Chapter 7 bankruptcy will wipe out most unsecured debt and give you a fresh start. There are exceptions, of course. Some tax debt, for example, could be unsecured and dischargeable through bankruptcy, but not all tax debt. Work with our experienced lawyers, and we will help you determine which debts can be discharged, stop foreclosure, stop repossession and file for bankruptcy.

Frequently Asked Questions About Unsecured And Secured Debts

Navigating bankruptcy can be overwhelming, so it is normal to have questions about it. Here, we have answered some of the commonly asked questions to provide further insights.

How does a reaffirmation agreement impact secured debt in a North Carolina Chapter 7 bankruptcy?

Signing a reaffirmation agreement means you agree to stay committed to repaying certain debts while a Chapter 7 bankruptcy filing continues. You can voluntarily apply for this to retain your home, car and other secured debt assets. It will not affect your bankruptcy filing unless you default on meeting the repayment terms. Failing to settle can give lenders the right to seize the collateral. That is why one of the requirements of a reaffirmation agreement is to prove that you have the capacity to meet the repayment terms.

What happens to the remaining balance if a debtor surrenders a vehicle or home tied to a secured debt in Chapter 7?

A Chapter 7 bankruptcy filing erases the remaining or deficiency balance, alongside the other unsecured debts you have incurred. This means collectors cannot sue, garnish wages or take legal action against you to regain this balance.

While an approved bankruptcy filing erases your obligation to pay the remaining balance, your co-signer may remain unprotected. This means that the creditor can pursue them to settle, especially if they did not file for bankruptcy. Additionally, if you surrendered your home, you can remain liable for property taxes and homeowners association dues incurred after the bankruptcy filing date.

What is debt bifurcation, and how does it split a single loan into secured and unsecured portions?

Debt bifurcation is a process that divides a single debt obligation into two or more distinct parts. In bankruptcy, the courts may only approve this when you owe more on the asset than the asset is actually worth. Debt bifurcation is primarily available under Chapter 13 reorganization plans, provided statutory criteria are met.

For example, if you owe $30,000 on a vehicle currently worth $20,000, a Chapter 13 cramdown lowers the secured claim to the car’s market value. You have to repay $20,000 through the Chapter 13 plan. The remaining $10,000 becomes an unsecured deficiency claim, which may receive a partial payout or be fully discharged upon plan completion.

Contact A Henderson Secured Debts Attorney ∙ 919-794-8660

Call our North Carolina lawyers at 919-794-8660, text us at 919-382-3065 or contact us online to schedule a free initial consultation. We offer consultations over the phone, through video conferencing or in person.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.