If you’re struggling with debt, you might be considering bankruptcy as a possible option. Many people say that bankruptcy erases your debt, but that’s not completely true — bankruptcy can wipe out some (but not all) kinds of unsecured debt, and secured debt can sometimes be discharged. Before filing for bankruptcy, you should make sure you fully understand your debt situation and how bankruptcy may impact it. Here’s your guide to understanding secured and unsecured debt in Florida bankruptcy.
Unsecured debt is debt with no collateral — for example, medical or credit card debt. Secured debt — like mortgages or car loans — involves collateral the lender can take back if you don’t pay.
Understanding Secured Debt
Secured debt is “secured” by an asset, which means a lender can easily take back the asset if you don’t pay the debt as agreed. A car loan is a common example. Because the lender can seize and sell the asset if you don’t pay the loan, secured debt usually has a lower interest rate than unsecured debt.
Secured Debt in Chapter 7 Bankruptcy
If you declare Chapter 7 bankruptcy, some types of secured debt may be discharged. However, that doesn’t mean you get to keep the asset which secures the debt. For example, your mortgage debt might be discharged, but your lender will very likely foreclose on the house if payments go behind. You cannot keep a car or house with a lien against it if you do not pay the loan securing the asset.
Secured Debt in Chapter 13 Bankruptcy
Whether your secured debt is discharged in Chapter 13 bankruptcy depends on the terms of your repayment agreement. You might negotiate an agreement that involves keeping the asset and catching up on payments. However, if the asset is something non-essential (like an extra car), it may make more financial sense to give it back to the lender.
Understanding Unsecured Debt
Unsecured debt has no asset for the lender to take back if you fail to pay. These are some common kinds of unsecured debt:
- Credit cards
- Student loans
- Personal loans
- Medical debt
- certain back taxes
Bankruptcy courts do not view all unsecured debt equally. When dealing with either Chapter 7 or Chapter 13 bankruptcy, the courts view some kinds of unsecured debt as “priority” debt. These are:
- Unpaid child support
- Unpaid spousal support
- Criminal fines
- Any debt incurred by fraud
- Recent back taxes.
If you’re going through bankruptcy, it’s highly unlikely that you’ll be able to pay most debts. If you can repay some, the court will put the money you’re able to pay toward priority debts.
Considering bankruptcy? Let me help you make this critical decision. Call Lewis Roberts, PA at (407) 749-0080 to schedule your free consultation.
Unsecured Debt in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often a good choice if you have a low income, few assets, and more debt than you could reasonably repay. This means that many (if not most) kinds of unsecured debt can be discharged. When you declare Chapter 7 bankruptcy, your medical bills, credit card bills, and other kinds of non-priority debt will more than likely be discharged. Most kinds of priority debt cannot be discharged in Chapter 7 bankruptcy.
Unsecured Debt in Chapter 13 Bankruptcy
The kinds of debs that cannot be discharged in Chapter 13 bankruptcy are similar to those that can’t be discharged under Chapter 7 bankruptcy. However, which debts are discharged will also depend on your specific debt repayment agreement.
Can Your Debt Be Discharged in Bankruptcy?
A Closer Look
Whether your debt can be discharged is often a more complex question than it seems at first glance. While the best way to determine whether debt is dischargeable is to talk to a lawyer, these are some general rules that Florida bankruptcy courts apply to common unsecured debts:
Medical Bills
Medical bills are one of the most commonly discharged debts in Chapter 7 bankruptcies. In Chapter 13 bankruptcy, you’ll likely pay a small amount toward these bills during your repayment plan. If you have remaining medical bills after the completion of your payment plan, they will likely be discharged.
Credit Cards and Personal Loans
Credit cards and personal loans are also usually discharged in Chapter 7 bankruptcy. In Chapter 13 bankruptcy, credit card and personal loan debts remaining after the completion of your repayment plan will likely be discharged.
Car Loans
Florida law protects up to $5,000 of equity in a vehicle if you declare Chapter 7 bankruptcy. If your car exceeds the exemption, you may have to pay a small amount to keep a car with too much equity.
Mortgages
Florida’s homestead exemption means that most primary residence equity is protected in Chapter 7 and Chapter 13 bankruptcy. However, if your mortgage debt is discharged, the lender may take the home back if you do not stay current on the payments. Mortgages generally aren’t discharged in Chapter 13 bankruptcy because the loan has a longer repayment period than the length of the Chapter 13 plan.
Student Loans
Student loans aren’t automatically discharged in bankruptcy, but your attorney might be able to help you discharge them through something called an adversary proceeding. This is when your lawyer argues that repaying your student loans would pose an undue hardship. If the argument is successful, your federal student loans might be discharged.
This kind of discharge is rare, but when it happens, it’s most common in Chapter 7 bankruptcy. Because Chapter 13 bankruptcy primarily restructures your debt as opposed to discharging it, your student loans will likely be included in your repayment plan.
Back Taxes
If you have accumulated considerable back taxes, they might be discharged in bankruptcy. While recent back taxes typically can’t be discharged, back taxes from three years ago or longer can be discharged in Chapter 7 bankruptcy. If any older tax debt is present after completing a Chapter 13 payment plan, these debts may be discharged as well.
Child Support/Spousal Support
Florida considers these to be priority debts, and state law prevents them from being discharged in bankruptcy. Even after you declare bankruptcy, you will be legally responsible for any past due and current child support or spousal support.
Lawsuit Judgments
If you were ordered to pay damages as a result of a negligence lawsuit, these debts may be discharged. However, court judgments stemming from accidents where you drove while intoxicated or intentionally hurt someone usually can’t be discharged.
Need Help Deciding What to Do About Your Debt?
I Can Help You Create a Plan for Financial Freedom
For some people, bankruptcy can be a way to financially start over. Whether your debt is discharged or restructured, filing for bankruptcy may help you get out from under debt that previously seemed insurmountable. However, bankruptcy is not a one-size-fits-all solution. Depending on your financial situation, it might be better to pursue another strategy for debt resolution.
I have helped countless Florida residents find a brighter financial future through bankruptcy, and I may be able to help you too. At your free consultation, we can discuss your finances and begin working toward a solution.
If you’re thinking about bankruptcy, I can help you decide whether this is the right option. Call me at (407) 749-0080 to book your free consultation today.
Attorney Lewis Roberts
The weight of debts that one cannot pay carries financial stress into every waking moment. It is time for this to end. Lewis Roberts, PA, offers solutions to relieve these worries. With over 20 years of experience in helping individuals overcome the burden of debt, bankruptcy attorney Lewis Roberts presents a range of options tailored to each unique situation. Clients can trust his advice on any matter related to debts, as he identifies appropriate options and explains the paths to debt relief clearly and carefully. This ensures that clients make the best decisions for their future. [ Attorney Bio ]
