There are three main types of debt in bankruptcy: Dischargeable, non-dischargeable and secured debt. It is important to understand how these affect you.
These types of debt go away in a Bankruptcy. Generally speaking, these are “unsecured, non priority” debts. Unsecured means that the debt is not for a particular type of property, such as a car or home. Non Priority means that the debt does not fall into a particular class of debts that generally include taxes, child support or alimony.
Credit Cards: Visa, MasterCard, Discover, AMEX, Lowe’s, Best Buy, GAP, JC Penny’s
Medical Bills: Hospital stays, ER visits, primary care physicians, dentist bills, x-rays, etc.
Civil Judgments: If you have been sued for a debt, and a judgment has been reached.
Foreclosed / Surrendered houses: If you have had a house foreclosed upon, you will probably receive a deficiency judgment for the balance still owed.
Repossession Deficiency Judgments: If you have had a vehicle repossessed – either voluntarily or involuntarily, the lender will usually sell the vehicle at auction. The amount the creditor receives at auction minus what you owe is called the deficiency. A creditor will often sue you in court to receive a deficiency judgment.
Payday Loans: High interest rate, short term loans.
Utilities: Old utility bills like water, gas and electricity can be wiped out in a bankruptcy. You are guaranteed service again, but you will be required to pay the security deposit again. One exception to the guaranteed service rule is cable and internet. These are not considered “Utilities” and while the debt is dischargeable, the cable company might require you to pay the debt back if you want to have service with them again.
Attorney Fees: If you have accumulated attorney fees you can discharge them in bankruptcy. If you are currently utilizing the service of the attorney such as in a protracted divorce dispute, custody, etc… it is probably a good idea to enter into a repayment agreement with the attorney after you file (post petition).
Bounced Checks: Commonly referred to as NSF checks. Technically these are dischargeable; however, in order to avoid criminal prosecution by the District Attorney’s office, it is recommended that you pay the face value of the check plus the $30 service fee. Checks tendered over 5yrs ago may not be subject to the same rule.
These types of debt generally do not go away in a Bankruptcy. I call these debts that can follow you to your grave.
Criminal Fines or Fees: Speeding tickets, court costs, fees, restitution, etc. If you have fees that are holding you up from getting your driver’s license back, those will also have to be paid. Parking tickets are considered penalties and are not dischargeable either. See 11 USC 523(a)(7)
Domestic Support Obligations: An ongoing child support commitment is non dischargeable. If you have child support arrearage – whatever the amount – that is non dischargeable. Finally, any alimony commitment you have is not dischargeable.
Civil Judgments: If you caused injuries to someone while under the influence of alcohol, any judgment or settlement reached against you is non dischargeable.
Taxes: Tax debt that fit a certain criteria can be dischargeable. For more information, please click HERE.
Student Loans: 99% of the time student loans are not dischargeable. For more information, please click HERE.
HOA Fees: Homeowners Association Fees can be tricky. As a blanket rule, you are responsible for all HOA fees – even after you file bankruptcy and surrender your home. There are exceptions: You sold the home and the fees were settled during closing. You surrendered your home in a bankruptcy, AND the deed was modified (changes hands). If you file bankruptcy but KEEP your home, you are responsible for all dues and HOA fees. See 11 USC 523(a)(16)
Tax Liens: A tax lien is usually placed on your property for unpaid taxes. Tax Liens are particularly nasty in the sense that they also attach to other types of property, such as your personal belongings. Tax liens are also a type of secured debt and must be paid back. Tax liens can be taken care of more easily in a Chapter 13 bankruptcy because you can pay the value of all property the lien attaches to, as opposed to the actual amount of the lien.
For more information, please click HERE
These types of debt are secured by physical collateral. You can choose to surrender the collateral and not owe anything, or you can keep the collateral but you must continue making the payments
Vehicle: The most common type of secured debt. Many dealerships offer financing on the premises for the purchase of the vehicle. Interest rates can vary greatly, from 0% up to 30%. This is called a “Purchase Money Security Interest” because you used the money that was loaned to you to purchase the vehicle. There are also Title Loans – these are “Non-Purchase Money Security Interests” because the money the title loan company gave you was not to purchase the vehicle; instead, it was a loan against the value of your vehicle. Title loans are usually extremely high interest rate loans that make it difficult to pay back.
Home: When purchasing a home there are two main components: The “Deed” and the “Note”. The note is the actual promise to pay the debt back. The deed lists the purchaser’s name as well as the lien holder – the mortgage company or lender.
Nebraska Furniture Mart; Best Buy; Home Depot: If you use a credit card issues by one of these companies, any items purchased will be considered a secured debt and must be paid back if you wish to keep the item. For example, if you purchased a couch at Nebraska Furniture Mart using a NFM credit card, or you purchased a computer, TV or refrigerator at Best Buy using a Best Buy credit card, you will be required to pay the debt in order to keep the property. Nebraska Furniture Mart is particularly aggressive in this area.
Tax Liens: see tax liens above.
The above categories are the three main types of debt in bankruptcy: Dischargeable, non-dischargeable and secured debt. It is important to understand that every case is different and although you may have some or all of these types of debt, every situation is unique and there is no cut and dry approach to every case. If you have a question about any of these types of debt, contact us or give us a call.
If you have any questions about types of debt in bankruptcy? Feel free to give us a call at 785-379-3600 for a FREE Consultation over the phone or in person or you can email us now.