Why Does the Type of Debt Matter in Bankruptcy?
In any given bankruptcy case, you will need to identify debts that are secured and unsecured, and you will need to think about the dischargeability of your debts and whether any of your debts are co-signed. Why does the type of debt you have ultimately matter? There are many reasons that the type or classification of debt matters, and our West Palm Beach bankruptcy attorneys can tell you more.
Dischargeable and Non-Dischargeable Debts
Understanding whether your debt is dischargeable — if you are an individual debtor filing for personal bankruptcy — is essential. Dischargeable debts are those that can be discharged, which means you will no longer be liable at the end of your bankruptcy case. Non-dischargeable debts, or those identified as “exceptions to discharge” under the US Bankruptcy Code, are ineligible for discharge. If the majority of your debts cannot be discharged, it does not usually make sense to file for bankruptcy. Keep in mind that, although student debt is listed under the exceptions to discharge, student loans can be discharged if you can show that continuing to make payments on your loans would constitute an undue burden for you. The process for proving an undue burden has recently become much easier, as well.
It is important to know that businesses filing for Chapter 7 bankruptcy do not receive a discharge. This is one of the ways that Chapter 7 cases are different for businesses and for individuals.
Secured Debts and Unsecured Debts
In bankruptcy cases, it is important to know whether your debts are secured debts or unsecured debts, especially in Chapter 13 (or Chapter 11) bankruptcy cases. Secured creditors are paid first, before other creditors, and secured debts must be repaid in full in a reorganization bankruptcy case. Only certain types of unsecured debts, which we will explain below, must be repaid in reorganization cases.
Unsecured Priority Debts and Non-Priority Debts
Priority creditors of unsecured priority debts are repaid before non-priority unsecured creditors in liquidation cases, and in reorganization cases, unsecured priority debts must be repaid fully. Accordingly, if you are an individual filing for Chapter 13 bankruptcy, you will need to anticipate repaying unsecured priority debts (such as family support you owe), but non-priority debts often are discharged in full at the end of a case.
It is important to consider whether any of your debt is co-signed debt, especially in a Chapter 7 bankruptcy case. If co-signed debt is discharged (in any type of bankruptcy case), the person who co-signed will continue to be liable for the debt even if it is discharged. If an individual has co-signed a business loan, if the business files for bankruptcy and does not repay the debt, even though business debt is not typically discharged, the co-signer will continue to be liable for the debt.
If you do not want a co-signer to be liable for debt, the debt will need to be repaid, or you will need to reaffirm the debt in your bankruptcy case.
Contact a West Palm Beach Bankruptcy Lawyer Today
For any questions about individual or business bankruptcy, you should get in touch with one of the experienced West Palm Beach bankruptcy attorneys at Kelley, Fulton, Kaplan & Eller as soon as possible.