Types of Creditor Claims in Bankruptcy: Secured, Unsecured & Priority
There are many different kinds of debts, and when it comes to bankruptcy, they are not all treated the same.
Creditors will have different kinds of claims to your debts and understanding how these work will allow you to know how they will be treated in bankruptcy. The three ways that debts can be classified include secured, unsecured, and priority.
How Are Secured Claims Treated?
A secured claim is one where the credit for the debt actually has a lien on the property, or a security interest. Common examples of this type of claim include a car loan, property taxes, and mortgages. A bankruptcy discharge will not automatically get rid of these liens, but they will get rid of your personal liability for them. That means that these kinds of debts, if left unpaid, can still be repossessed if you do not pay the debt. If you want to keep the asset, even with a bankruptcy, you would have to continue making payments.
How Are Unsecured Claims Treated?
An unsecured claim is one where the creditor for the debt does not have a lien against your property. Examples of this kind of claim include credit card debt, personal loans, and even some medical bills. One exception to this would be student loans. While student loans are unsecured debts, they are also not considered to be a priority and cannot be discharged by a bankruptcy. A bankruptcy would eliminate most other kinds of unsecured claims, unless it was a priority claim.
How Are Priority Claims Treated?
Priority claims are types of unsecured debts that cannot be discharged through bankruptcy. Examples of this kind of debt include alimony payments, child support payments, and even some tax obligations. You cannot simply wipe these out through Chapter 7 debt, but you can utilize a debt repayment plan through Chapter 13 bankruptcy to pay off these specific priority claims. If you have these types of claims, then it can change the type of bankruptcy that you can file if you wish to eliminate them through a payoff.
Bankruptcy can be a confusing and complicated process. You should not face it alone but with a bankruptcy attorney. For more information and some guidance in the process, be sure to reach out to us here at Clark & Washington.