Unsecured Debt and How Bankruptcy Affects It
There is a significant difference between secured and unsecured debt and how it is treated during a bankruptcy action. Secured debt is backed by collateral. For example, a car loan is secured by the vehicle itself. When a person defaults on a car loan, the lender may repossess the vehicle and sell it in order to recoup on the loan. Home foreclosures occur because the mortgage loan is secured by the value of the home. However, credit card debts and other types of loans are not secured by any collateral and are designated as unsecured debt. Merchant Money LTD’s unsecured business loans can be great for customers with a high credit score, but for other businesses with a low credit score, they may not even be obtainable.
The nature of the unsecured debt is such that creditors need to get debtors to voluntarily pay the debt because they cannot seize any assets without protected and potentially costly legal action. This means that they are going to use intimidation and coercion to attempt to obtain payments. When a person has experienced financial hardship and been unable to pay certain bills, it is common to be harassed by collection agencies once the creditor has sent the delinquent account to a company dedicated to getting payment. Collection efforts include frequent telephone calls and written demands for payment. One of the most immediate benefits of the filing of a bankruptcy action is the automatic stay that stops this type of harassment, but until this is done, the efforts of the collection personnel can wreak havoc on a person’s life.
The most common types of unsecured debts include:
- Credit card balances;
- Student loans;
- Medical bills;
- Utility bills;
- Overdue taxes; and
- Unpaid rent.
Many times, the collection agency will attempt to negotiate a repayment plan. If a deal cannot be reached, the creditors may file a legal action against the debtor. Once this is done, the creditor may obtain a judgment against the debtor and may take actions such as seizing assets such as bank accounts or pursuing wage garnishment to satisfy the judgment.
In Chapter 7 or Chapter 13 actions, most types of unsecured debt can be reduced or eliminated entirely. This is one of the reasons that collection agencies attempt to dissuade a debtor from filing for bankruptcy. These efforts also may include attempts to get a person to invade a qualified retirement account or other unreachable asset, which likely would be protected in bankruptcy, to make payments on an unsecured debt. It is very important not to take any action like this without consulting an experienced bankruptcy attorney. One of the most effective tactics of collection agents is to convince a debtor that filing a bankruptcy action will destroy their future financial standing. This is patently untrue. For most people, bankruptcy provides the tools for a fresh start with an understanding of the best ways to manage future financial hardships. This new financial beginning allows a person to build the foundation to improve his credit rating, purchase a vehicle, and even qualify for a home loan within a few years of the completion of the bankruptcy action and the discharge of some debt and reduction in other financial obligations.
The attorneys at the Law Offices of Georgette Miller & Associates, P.C. are dedicated to working with clients to determine the best methods for dealing with the financial struggles that they might face. Although our attorneys are skilled in pursuing bankruptcy actions to a successful resolution, we also understand that there are alternatives based on the unique circumstances of each client. We will sit down and analyze the type of debt that the client has and determine whether it is best addressed through bankruptcy or negotiation with secured and unsecured creditors. To schedule a time to discuss your situation, please call us at 1-866-964-6529 ((866) 964-6529).