Everything you owe credit card companies – because of purchases, fees, cash advances, interest – is considered unsecured debt. Medical bills, utility bills, payday loans and personal loans are also considered unsecured.
On the other side, home mortgages and car loans are considered secured debt because the debt is directly tied to a piece of property.
This is important when filing bankruptcy, because what type of debt you have will determine how it’s handled in court.
Unsecured debt is typically handled in one of two ways:
In most bankruptcy cases, credit card debt will be completely discharged. Retired. Eliminated. Gone. Those debts will be cleared and credit card companies may not make further claims against the debt. They can’t call you or send bills after you file.
This most commonly happens during Chapter 7 bankruptcy. In almost every Chapter 7 bankruptcy case all unsecured debts, including credit cards and anything else, are discharged.
Chapter 13 bankruptcy filings may also include complete retirement of all or certain unsecured debts. To see if this would apply to your case, speak with a local bankruptcy lawyer.
More common for Chapter 13 bankruptcy, if bankruptcy is unable to completely eliminate your credit card debt, it could drastically reduce what you owe. Then, once reduced, your credit card debt would be ordered and secured by a bankruptcy judge.
This is important, because once your debt has been secured by your bankruptcy filing, it will be frozen. Your debt won’t be subject to late fees or rate increases. Instead, you’ll make one monthly to a court-appointed trustee who will handle all of your debts. This also puts a stop to phone calls and letters from collectors thanks to one very powerful tool.
There are other services, like debt settlement, that claim to help you get control of your debt. But only bankruptcy can offer the protection of the automatic stay.
The automatic stay is a court order that puts a stop to all claims against you, your property and your debts from the moment you file bankruptcy until you are finished. This means that when you file, credit card companies and everyone else must stop calling, sending bills or taking other action, including lawsuits.
So if you file a Chapter 13 bankruptcy and are paying off your debts over several years, you will be protected from calls and lawsuits during this time.
If your debts are settled quickly through a Chapter 7, creditors will not be able to make claims against debt that was eliminated with bankruptcy.
If someone tries to make claims while you’re protected by the automatic stay, they would likely be in violation of the law and could be sued.
If you have more questions about how filing bankruptcy works to eliminate your debt, speak with a local bankruptcy attorney. Your attorney can answer your questions, take you through the bankruptcy process and explain how the laws could affect you.
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