The more information you have going into a bankruptcy proceeding, the more prepared for the process you will be. Understanding the difference between secured and unsecured debt is particularly important, as this will be a major factor in which debts are discharged and which are not.
Bankrate explains the differences between these two debt types. Most people have a mix of different types of debt, which are typically handled differently depending on what category they fall into. This information will help you make the right decisions during your bankruptcy so you can get back on track financially.
Secured debt is debt that is backed by collateral. This includes money owed on car loans and mortgages. In the event you are unable to make payments on these loans, creditors can seize the collateral to recoup their losses. This type of secured debt is known as consensual, which entails both parties agreeing that property can be seized in the event of non-payment. Non-consensual secured debt involves a tax lien or lawsuit being filed against you, in which case it may be possible to seize property you own outright to recover monies owed.
Unsecured debt is not backed by collateral. This includes student loans, personal loans, credit cards, medical bills, utility bills, and others. When filing for chapter 7, most types of secured debt will be discharged. However, student loans are traditionally not discharged unless you can prove that repayment of your student loans will cause a great deal of financial hardship. While this can be a challenging process, courts are becoming more amenable to student loan discharges due to the massive amount of debt they usually incur.