When you’re filing for bankruptcy, the final disposition of your debts will be determined in part by the type of debt you have. There are several different classifications of debt for the purposes of a bankruptcy proceeding, and each has its own set of rules. Types of debt may include priority, non-priority, secured, or unsecured. Unsecured debt is an obligation that does not have something attached to as collateral. In other words, there is no designated property securing the repayment of the debt that a creditor can seize to satisfy an unpaid obligation.
There are many types of unsecured debt, and most creditors besides lenders who finance home and auto loans are unsecured. Some examples include credit card debt, student loans, utility bills that did not require a cash deposit (designed to secure the loan in case of default), medical bills, many personal loans, and court judgments or back taxes that aren’t subject to a garnishment or lien.
When you fail to make payments on an unsecured debt, a creditors options for recovery are limited without a court order. An unsecured creditor will make attempts to collect on your debt by making phone calls, sending letters, and reporting negative history to a credit reporting agency. Collection attempts are stressful, and reports to a credit agency about a default will lower your credit score and make it more difficult to get credit or to get favorable interest rates and loan terms. Negative marks on your credit can impact your finances for years to come. However, because your obligation isn’t contractually guaranteed by any collateral, an unsecured creditor usually won’t be able to seize your assets without a court order.
If an unsecured creditor fails in their efforts to collect, they may file a civil complaint against you. If collections progresses to this point, you will be served with notice and given an opportunity to file an answer with the court. Being served with notice and filing an answer is your legal right. If the lawsuit moves forward and an unsecured creditor wins a judgment against you, you may face garnishment of wages or bank accounts, and/or the liquidation of some or all of your assets so the proceeds can be used to pay the debt. This type of litigation will be time consuming and stressful, and can often result in you losing property or other assets.
If you are having trouble keeping up with payments on unsecured debt, contact a bankruptcy lawyer as soon as possible. There’s no need to put up with months of harassing phone calls from debt collectors, or to live in fear of wage garnishment and asset forfeiture. In fact, most unsecured debt can be wiped out completely through a bankruptcy, and since there is no collateral property attached to these obligations, you often won’t lose any assets at all. Our experienced bankruptcy lawyers are here to help you through the process, so contact us today and don’t spend any more time swimming upstream against debt you can’t manage.
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