Explanation of Debt
Many people who go through the process of bankruptcy are confused about what is secured, unsecured and priority debt.
Secured debt is any debt that a creditor can take away from you, such as a house, a car, or even miscellaneous household goods one must sometimes put up for collateral in order to secure a loan. This type of debt is a debt that you must pay in order to keep the items that you want. If you are going through bankruptcy and have put up collateral to get a loan, like the miscellaneous household goods, then there is a process we would go through to void that lien. The reason for this is that, in bankruptcy, your household goods are protected by exemptions. Therefore, this type of debt does not have to be paid back.
Priority debt is any debt owed to the IRS or for child support. These types of debts have to be paid back and are generally paid through a chapter 13 at a zero percent interest rate. Under a Chapter 7 bankruptcy, this type of debt is not dischargeable, and one must still pay it off after discharge.
Unsecured debt is debt in the form of credit cards, utility bills, and medical bills. These are intangible things that can not be physically taken from you.
I feel that it is very important that clients understand the difference between all three of these, so that they may have a more thorough understanding of the process.
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