(See also claim )
An unsecured claim is a claim which is not backed by any collateral and which the creditor has no assurance of payment if the debtor defaults on their debt payments. Unlike a secured claim, which allows for the repossession of the asset to secure at least a partial loan repayment, the loan for an unsecured claim was given to the borrower strictly on the creditor's assessment of the borrower's future ability to pay.
Bankruptcy repayment plans and debt liquidation processes give the least favorable treatment to unsecured loans. Common unsecured loans or claims can include: personal loans, credit card debts and medical bills. Unsecured claims are generally discharged quickly in a Chapter 7 Bankruptcy case. Exceptions to this rule can include priority unsecured debts which are not discharged by filing Chapter 7 Bankruptcy (certain taxes, child support, alimony, court-ordered restitution and debts associated with a DUI charge and student loans (under certain conditions a student loan may be discharged).
Filing Chapter 13 Bankruptcy allows unsecured debts to be paid after all other priority claims and secured claims have been paid (including priority unsecured claims). Payment for these secured claims includes principal payments, penalties and interest. Unsecured creditors may be paid nothing, or they may be paid the total amount they are owed. All Chapter 13 Bankruptcy creditors who are owed unsecured or secured claims must complete a Proof of Claim form and file it with the bankruptcy court within a specified time period to receive claim payments. Failure to file the Proof of Claim form may eliminate the creditor's right to payment. The debtor can file an objection to the Proof of Claim. Failure to file the objection validates the claim. The creditor must provide the following types of information on the Proof of Claim form to receive payment (See also Proof of Claim):
- Type of claim (general or priority unsecured debt or secured debt).
- The amount of the claim
- The interest rate for the claim
- The total amount of the claim on the date the bankruptcy petition was filed.
- The amount of late fees, penalties and accrued interest for the claim on the date the bankruptcy petition was filed.