Types of Debts in Bankruptcy
There are different types of debts in bankruptcy. Not all debts are treated the same in bankruptcy since Congress decided that certain types of debts are more important than others types of debts in bankruptcy. As a result, the way bankruptcy affects a particular debt depends on what kind of a debt it is classified. The following are different classifications of debts in bankruptcy:
Secured Debts
A creditor has a secured debt if it has taken the steps necessary to place a lien on the property. Usually a secured creditor can repossess or foreclose on property if you fail to make your loan payments. A debt is deemed to be “secured” by the property that acts as collateral. The most common examples include mortgages and car loans.
Unsecured Debts
A debt that is not secured by a piece of property is an considered an unsecured debt. Unsecured debts are further divided into priority and nonpriority categories.
Priority Debts
Priority debts are usually non-dischargeable (they can not be wiped out by a bankruptcy). These debts usually get paid before most other debts in Chapter 7 bankruptcy. Examples of priority debts include alimony or child support and certain kinds of tax debts.
Non-priority General Unsecured Debts
Non-priority general unsecured debts are at the bottom of the pecking order and receive no special treatment in bankruptcy. They are the last to get paid in Chapter 7 bankruptcy. Most nonpriority unsecured debts (with a few exceptions like taxes and student loans) are discharged without any repayment in bankruptcy. These debts include credit cards, unsecured personal loans, and medical debts.
Q. So how are my medical debt treated in a Chapter 7 bankruptcy?
A. As discussed in my prior blog post, medical debt is treated as a non-priority unsecured debt in bankruptcy. What this means is that medical debts will not receive a higher priority in a Chapter 7 case if the bankruptcy trustee is able to make some payment to your creditors. If a portion of your medical debt is paid through a Chapter 7 bankruptcy then the remainder will be wiped out when you receive your discharge. If you are struggling with large amounts of medical debt, a Chapter 7 bankruptcy may be your easiest and best option to relieve this burden. I suggest you contact an experienced Utah bankruptcy lawyer to see if your medical debts can be taken care of in bankruptcy.