If a debtor is unable to pay their financial obligations they are said to be "insolvent" or in Insolvency. Debtors can include large corporations, students, homeowners, individuals and governments. Debtors seeking to receive a discharge from the debt may file bankruptcy.
If the debtor meets all of the mandates of the Bankruptcy Code they may be discharged from their debts. Bankruptcy discharges are a legal order from the court which permanently bars a creditor from any further collection efforts including: harassing telephone calls, letters, personal contact or any type of legal debt collection efforts. Certain debts which can not be discharged by bankruptcy are included in 11 U.S.C. Section 523.
The most common debts which can not be discharged include: tax debt, debts not listed on the bankruptcy schedules, alimony, child support, student loans, certain HOA housing fees and fines for injury caused by driving while intoxicated. Debts are generally divided into two categories- secured debt and unsecured debt. Secured Debt is secured or collateralized by property or something tangible which can be repossessed by the creditor if the debtor defaults on their debt payments. Common secured debt includes home mortgages, car loans and jewelry. Debtors also may have unsecured debts which are not secured by an asset. Creditors incur a higher risk lending money to debtors which is not secured by assets. Unsecured debt can include credit card debt and personal loans. Creditors generally charge a high interest rate to debtors who borrow unsecured credit.