Anyone considering filing for a Chapter 7 bankruptcy in Los Angeles has a responsibility to educate themselves on the differences between secured and unsecured debt.
The reason our Los Angeles bankruptcy lawyers believe this is so important is that it will give you a greater sense of what a filing is going to mean for you and your personal situation. Of course‚ our attorneys stand ready to help you answer any questions you might have. During our consultation‚ we’ll help to break it down for you even further as it relates to your individual circumstances.
But we also believe that being informed helps you avoid surprises.
Basically‚ bankruptcy is a chance to start over again. It’s the best option for those who can’t afford to repay what they owe in any realistic time frame. What Chapter 7 bankruptcy does is unshackle your debt – most of it‚ anyway.
Unfortunately‚ not all debt is created equal. The difference is secured versus unsecured. A bankruptcy is going to help you with the latter‚ but typically not the former‚ except in rare circumstances.
A secured debt is basically any debt against which assets are placed as a security. It’s backed by some sort of collateral. What this means is that if you can’t afford to pay for it‚ it’s going to be sold so that the lender can get back his or her money.
The good thing about secured debt is that generally‚ the interest rates are going to be lower. That’s because the risk is less when the lender can simply take back the collateral if you don’t pay.
Some examples would be mortgages or car loans and even your student loans that are backed by government subsidies. Other examples might be a washer or dryer your purchased on a department store credit card. If you don’t pay for the appliances‚ the store can take them back.
Unsecured debts are those debts that are not backed by any sort of collateral. Examples of unsecured debt would be things like:
- credit cards;
- utility bills;
- medical bills;
- personal loans;
Because unsecured debt comes with a higher risk for the lenders‚ as there’s nothing they can seize if you don’t pay‚ these types of debt usually have higher interest rates. The problem‚ however‚ is that those higher interest rates can soon mean you are trapped in a debt cycle in which you’re stuck paying the minimum payments‚ which barely covers that interest. When that happens‚ in some cases you’re looking at possibly decades before you can pay them off.
Thankfully‚ a Chapter 7 bankruptcy can help.
And even though a bankruptcy typically can’t address those secured debts‚ or bills such as child support or alimony payments‚ by getting rid of the unsecured debts‚ you have a greater ability to pay on the secured debts.
If you are considering filing for bankruptcy‚ contact Los Angeles bankruptcy attorneys at Cal West Law to schedule your free consultation. Call (818) 446-1334.
The Difference Between Secured and Unsecured Debts‚ By LaToya Irby‚ About.com