Secured vs. Unsecured Debt in Chapter 7 Bankruptcy in New Jersey

Before filing for personal bankruptcy, it is important that you evaluate your debts in order to determine whether filing under Chapter 7 or Chapter 13 will offer the greatest benefits.  Understanding secured vs. unsecured debt in Chapter 7 bankruptcy in New Jersey can be key to making this important initial decision.

Filing for bankruptcy will likely be an extremely stressful time for you, and an experienced Chapter 7 personal bankruptcy attorney could help you know what to expect throughout the process to alleviate some of this stress.

Difference Between Secured and Unsecured Debts in New Jersey

At the most basic level, a secured debt differs from an unsecured debt in that the debt is secured by a specific piece of property. This property is known as collateral, and the loan documents will provide that the lender has a lien on the property providing the right to repossess or foreclose upon that property in the event that the borrower does not make payments according to the loan terms. Mortgages and car loans are examples of common secured debts in Chapter 7 personal bankruptcy cases.

Unsecured debts, on the other hand, are not secured by any specific property and include some of the following:

  • Credit card debts
  • Medical bills
  • Personal loans
  • Student loans, although it should be noted that these debts cannot be discharged in bankruptcy

Unsecured debts may generally only be satisfied through the bankruptcy estate, which consists of the funds obtained by liquidating the debtor’s non-exempt property. Unsecured creditors will typically receive only a portion of the debt that is owed, depending upon the size of the bankruptcy estate.

Gaining an informed picture as to whether a debtor’s debts consist of secured vs. unsecured debt in Chapter 7 bankruptcy in New Jersey can be key ensuring that the case is resolved successfully and that the debtor understands what to expect as the end result of the bankruptcy process.

Impact on the Treatment of Assets in Chapter 7 Personal Bankruptcy

If a debtor is primarily burdened by secured, rather than unsecured, debt in Chapter 7 bankruptcy in New Jersey, they may be required to enter into an agreement with each specific secured creditor, assuming that the debtor wishes to retain possession of the property that was put up as collateral for the various debts.

A secured debt must be repaid entirely in order for the debtor to be permitted to keep the underlying property.  However, it may be possible for the debtor to renegotiate the loan throughout the bankruptcy process through executing a reaffirmation agreement with the creditor.

In some cases, the reaffirmation agreement will allow the debtor to negotiate a new interest rate or repayment term but will typically also require that the debtor make sufficient payments to bring the loan current.

Call a Lawyer to Understand Secured vs. Unsecured Debt in Chapter 7 Bankruptcy in New Jersey

A seasoned Chapter 7 bankruptcy attorney could help you gain a complete picture of your debts and how secured vs. unsecured debt in Chapter 7 bankruptcy in New Jersey will impact the resolution of your case. Finding a dedicated lawyer to advocate on your behalf early in the process could help the bankruptcy process proceed as smoothly as possible and allow you to keep more of your valuable assets.