There are three basic types of debt that affect millions of Americans. To learn more about these types of debt and how bankruptcy may be able to help – read on.
Three basic types of debt:
1. Debts that go away: Debts that go away (“dischargeable”) are usually the ones that get people in the most trouble – Credit Cards, pay day loans, medical bills, old cell phone bills. This type of debt is what usually gets people in the most trouble – Credit Cards, pay day loans, medical bills, old cell phone bills, charges on a car that was repossessed, lease arrears. If you are considering bankruptcy there’s a good chance that most of your bills fall into this category
2. Debts that don’t go away: Debts that don’t go away (“non-dischargeable”) include child support, most student loans, criminal fines, penalties and restitution, debts incurred through fraud, liabilities resulting from drunk driving, non-necessary credit card debt incurred within 90 days of filing, bounced checks to merchants (other than payday loans), back and current spousal support, back taxes less than three years old. This type of debt in not affected by bankruptcy and you will have to pay the full amount. For whatever reason, this debt is specifically set aside. Non-dischargeable debt includes child support, most student loans, criminal fines, penalties and restitution, debts incurred through fraud, liabilities resulting from drunk driving, non-necessary credit card debt incurred within 90 days of filing, bounced checks to merchants (other than payday loans), back and current spousal support, and back taxes less than three years old.
3. Secured Debt:Secured debt is the type of debt that is secured with collateral. A car, home or refrigerator you bought at Best Buy are all secured debt. They can be physically taken away from you. You will have the option of keeping the property and pay for it or you can give the property back and not owe a dime.
Secured debt is the type of debt that is secured with collateral. The easiest way to look at it is ask whether or not the collateral can be physically taken away from you. If the answer is yes, then it is probably secured debt. Examples of secured debt include a car, home or refrigerator you bought at Best Buy. Secured debt is generally considered less risky for the lender since they can always repossess the property. Due to this lower risk, secured loans usually have a lower interest rate than an unsecured loan. For example, compare the interest rate on your house or car loan versus your interest rate on your credit card.
You will have the option of keeping the property and pay for it or you can give the property back and not owe a dime. Giving up property is sometimes a great option for people who are “upside down” on their loan. For example, let’s say you bought a brand new car two and a half years ago for $20,000. The loan with interest will cost you $26,000 and you currently owe $18,000 on the note. Your car’s bluebook value is only $12,000. You are currently “upside down” on your car by $6,000. This is called negative equity.
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