There are two forms of debt, and some very effective ways to eliminate them. That's what this article is about: what secured and unsecured debts are, what bankruptcy is, and how to file to effectively discharge all your major debts. This guide defines key terms in order to make the process easier.
Secured Debts
Secured debt is money you owe for an asset. The major secured debts are your home and car, debts which, if unpaid, can lead to foreclosure or losing your car via a repossession. Secured debts are usually higher amounts, but with credit and medical debt being so common, it doesn't always mean more money is owed, just more money owed for one asset.
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Unsecured Debt
Credit cards and medical bills are unsecured debts. It does not mean creditors, those you owe money, have no means to get their money from you; it just means that your debts involve no major assets which can be taken back. If you have $20,000 in credit card or medical debt, creditors can still do things like garnish wages. However, with bankruptcy you can discharge debt and in most cases keep all your paycheck and every asset you own.
Chapter 7 Bankruptcy
This is a liquidation. The most common reason for Chapter 7 bankruptcy is to discharge medical debt. Recent studies have pointed out an inability to pay on medical debt is a leading cause of bankruptcy, which makes sense because medical bills can go from zero to $100,000 in months. Still, credit card debt is very common too. With Chapter 7 bankruptcy, you can effectively discharge these unsecured debts.
Chapter 13 Bankruptcy
Chapter 13 is less common because you have to pay some if not all the secured and unsecured debts you have. Technically, however, you have a better chance of losing no assets. If you have a lot of secured debt,such as a high mortgage, discharging these with Chapter 7 isn't very smart. This because you are losing the debt, but also losing the property. There are many cases where you can negotiate to keep the home. The best method is still to pay these debts in affordable installments by filing for Chapter 13 bankruptcy.
Asking for Help
If you're unsure of where to start, contact a professional bankruptcy lawyer in your state. Do not wait too long, as debts tend to grow and lead to countless problems. Filing for bankruptcy is not always the best option, but in many cases it can be the most effective.
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