Credit cards and medical bills are two examples of unsecured debt. Both can be completely wiped out in bankruptcy.
In any bankruptcy case, unsecured creditors need the most protection. They are the most likely to have their claims expunged or to receive mere pennies on the dollar. Protect your rights and call Bailyn Law right away.
If you find out that someone who owes you money has filed for bankruptcy, you need to get involved. If it is a Chapter 7 or 13, there may not be much for you to do, but you still need to protect yourself and your money.
Unsecured debt is not collateralized. There is no asset of the debtor “backing up” the loan. Examples of unsecured debt are credit cards, personal loans, utility bills, and medical bills. There may or may not be a specific Promissory Note for an unsecured debt, but there is almost always something evidencing that the debtor agreed to pay the debt. It may be as simple as an “IOU”, a credit card application, the sign-up forms for a cell phone carrier, or a form consenting to medical treatment.
Certain types of obligations can be a little confusing. For example, rent for an apartment or home is generally considered unsecured, but if the debtor does not pay, the landlord will seek to evict them. In the case of telephone or utility services, if someone does not pay their bill, the creditor/provider will “shut them off” until they pay or make arrangements. In a bankruptcy case these types of unsecured creditors need to be paid going forward by the debtor even though the past due balance may be treated in a plan.
In a Chapter 11, a committee of unsecured creditors can be formed to act on behalf of all the unsecured creditors. The costs of the committee – lawyers, accountants, investment bankers – are borne by the debtor. The committee helps keep the debtor “honest” by actively participating in the case. It will analyze the plan and disclosure statement to make sure that all unsecured creditors receive as much as possible in the reorganization.
In a Chapter 7 case, unless the trustee finds significant equity that can be sold, the changes are that an unsecured creditor will receive nothing; in Chapter 13 cases, there is a better chance of getting some amount of money. In cases involving individuals, certain debts can be discharged: medical bills, credit cards, personal loans, debts arising from contracts, promissory notes, among others. Additionally, certain marital debts, condominium fees, and debts not discharged in a prior bankruptcy, are also dischargeable in a Chapter 13.
However, certain unsecured individual debts survive the bankruptcy unaffected:
- Simple non-dischargeable debts: child support, alimony, debts incurred from drunk driving, criminal restitution, certain taxes;
- Debts that are non-dischargeable unless you convince the Court otherwise: student loans and income taxes; and
- Debts that are dischargeable unless a creditor convinces the court otherwise: fraud, theft, breach of fiduciary duty, and willful and malicious acts.
An experienced attorney can help you determine what actions, if any, you should be taking. Call us today for a consultation.