Can your debts be discharged in bankruptcy?
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North Carolina consumers struggling with debt may benefit from the protection offered under federal bankruptcy law. Wilmington bankruptcy comes in two forms for consumers – Chapter 13 and Chapter 7. One wipes out most debts within months, and the other allows you time to catch up on past due balances while still discharging some debt in full. Read on to see what debts can be eliminated using consumer bankruptcy.
Secured vs. Unsecured Debt
Secured debt is treated differently in Wilmington bankruptcy versus unsecured debt. Secured debt is tied to an asset which serves as collateral. The asset has a lien tied to it so that if you default on the debt, the creditor can recover the asset. With an auto loan, the lender can repossess the vehicle. With a mortgage, the lender can foreclose on you and take back the house.
Unsecured debt has no assets or lien to support it. This can be credit card debt, medical bills, and personal (also called signature) loans. Other forms of unsecured debt include student loans, both private and federal. However, federal student loans are treated differently than other forms of unsecured debt because it has no statute of limitations, no expiry, and is harder to extinguish.
Secured Debt and Bankruptcy
If you’re behind on payments on secured debt, Chapter 7 and Chapter 13 treat it quite differently. With Chapter 7, delinquent secured debt can’t be cured through bankruptcy while retaining the asset. This means that if you have a car loan and are behind on payments, you can’t wipe out the loan and keep the car. There are options to deal with car loans, but they involve redeeming the vehicle.
With Chapter 13, you can retain the asset by getting on a repayment plan to catch up on the past-due amount over a three to five-year period. If you want to surrender the asset, such as a car or home, and wipe out the debt, you can do so in Chapter 7 bankruptcy. But if you want to keep the asset and catch up, Chapter 13 is the better solution to relieve your debt and retain the asset.
Unsecured Debt and Bankruptcy
With Chapter 7 bankruptcy, unsecured debt, aside from student loans, can be completely discharged within just a few months to get you a fresh start with little to no debt left over. Credit cards, medical bills, signature loans, older utility balances, and some qualified income taxes can be wiped out. Student loans might be dischargeable if you have extenuating circumstances.
In Chapter 13 bankruptcy, unsecured debts are part of your repayment plan. Priority debts such as child support and alimony come first then secured debt like a mortgage and auto loan. Unsecured debts are last in your plan and how much of them you pay depends on your approved plan. You may pay most of them or almost none, depending on the plan the Wilmington bankruptcy court approves.
Debts That Can't Be Reduced or Eliminated in Bankruptcy
Some debts can’t be lessened or discharged in either form of Wilmington bankruptcy. Alimony and child support are two such debts. Only a family court can change your support payments. Recent income tax debt, accrued within the last year or two, cannot be discharged in bankruptcy. Student loans are not dischargeable in bankruptcy routinely, but exceptions do apply.
To request a discharge of student loans in bankruptcy, you must file a separate legal action called an adversary proceeding. If you have medical problems, permanent disability, earn very little with no hope of improving your income or have other extenuating circumstances, you might be successful in obtaining a discharge of some or all your student loans in bankruptcy.
To find out more about the benefits of Wilmington bankruptcy, contact the Law Offices of John T. Orcutt today. Call +1-919-646-2654 to schedule a free bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.