Setting My Finances Straight

If you are drowning in debt, all you may care to know about it is that you have far too much of it. Not being able to pay your bills more than just once in a while may be a sign that bankruptcy is in your future. A chapter 7 bankruptcy filing will provide you with the debt relief you need in most cases. The type of debt you have influences how much of it can be discharged. For an overview of the four main categories of bankruptcy debt and how a bankruptcy could affect those creditors and your bankruptcy, read on.

Debt in a Nutshell

For an overview of how debt is treated in a bankruptcy, filers should keep in mind that the purpose of a chapter 7 bankruptcy filing is to liquidate a filer's financial estate and pay off creditors in a fair manner. The bankruptcy codes allow the bankruptcy trustee to seize property from the filer and use it to pay some of the below debts. The property seized is only what is not already protected by exemptions, which allow filers to hang on to most real estate, vehicles, and personal belongings. Filers who have cash, savings accounts, and property not protected by exemptions may have to forfeit it. It is then sold and distributed to creditors according to a debt priority schedule.

Priority Unsecured Debts

You can consider everything in this category as non-discharged debts. In other words, if a filer has any of the below debts and there are no funds from which the trustee can pay them, they will remain until the debtor pays them. If you have assets available and administrative debts (see below) can also be paid, the bankruptcy trustee will see to it that as much as possible is paid toward priority unsecured debts. They include:

• Federal or state taxes owed (only recent tax debts, some are exempt).
• Child support debts
• Alimony or spousal support debts (in some cases and in some states).

Administrative Debts

The bankruptcy court places a high priority on how quickly this category of debts gets paid. These debts are always first in line when there are funds available. Administration debts include the trustee's pay, your attorney's fees, certain categories of taxes, auction expenses, appraisal fees, and accountant's fees.

General Unsecured Debts

This category of debt refers to the most common debts most filers have – credit card debt. Along with that debt are personal loans, IOU's, medical debt, and loans to friends and family. The chances for these being paid depends on your assets and the other debts you have.

Secured Debts

Mortgages and car loans make up the bulk of this category. Anything that is secured by the item itself is considered secure. If you want to keep a secure item, you must maintain the payments or it could eventually be foreclosed or repossessed.

Your debt situation could cause complications in some instances. Speak to your bankruptcy law attorney to find out more.