Sacramento Bankruptcy Attorney Talks about Different Debt
Sacramento Bankruptcy Attorney Talks about Different Debt
The Bankruptcy Petition is both a scary and a confusing process. There are many forms to complete and the information in the forms come with few instructions. For example, a Debtor is asked to list their monthly “Auto” expenses but does not accurately define if the expenses must include insurance, gas, parking, and maintenance or if the expenses should be a yearly average. An extremely troublesome problem is that a Debtor is asked to classify their debts into three main groups, Secured Debt, Unsecured Debt, and Priority Debt. (There are also Administrative Debt and Consumer Debts which are treated differently and not on the regular debt forms.)
A Secured Debt is debt backed by property. The Debtor has taken money and used a piece of property to secure the debt. That means the creditor has the right to take the property to satisfy the debt if the Debtor fails to repay the loan. The two most common examples are mortgages and auto loans. In a mortgage, the lender has a secured interest in the property (usually recorded as a Deed of Trust) which allows the creditor to foreclose on the property if the Debtor fails to pay the mortgage. In the example of cars, the creditor has a security interest in the car which gives them the right to repossess the car if the Debtor fails to the pay the loan. Secured Debts can rarely be discharged in Bankruptcy without losing the property.
A Priority Debt is debt that government has recognized as special and will be paid ahead of most other debts. (Usually only second to secured debt.) There are many types of priority debts but the most common ones are taxes, wage claims by employees, alimony, child support, and debts incurred pending the bankruptcy. These debts usually cannot be discharged because the government, as a public policy, has decided that the debts need to be repaid.
An Unsecured Debt is debt that is not backed by any property except the Debtor’s promise to repay. This is usually credit card debt and personal loans. When a creditor makes these kinds of loans, the creditor knows that they are taking a risk since there is no security tied to the loan. The creditor, in turn, is allowed to charge a higher interest rate for these debts. It is usually the unsecured loans that drive a debtor to bankruptcy because 25% interest is too high for any reasonable debtor to hope to repay.
The key to remember is that a Debtor must properly classify their debt in the bankruptcy. A misclassification may lead to a delay in the bankruptcy process, an objection to the bankruptcy, a dismissal of the bankruptcy or the survival of the debt through bankruptcy.
If you have a question regarding different debts please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Attorneys can assist you with all aspects of your case. We have attorneys in San Mateo, Monterey, Fremont, Salinas, Sacramento and San Jose.
