|
|
Chapter 13 Consumer Bankruptcy
Secured and Unsecured Debts
Secured
Debts in Bankruptcy:
A
secured debt is linked to a specific item of property, called collateral, that
guarantees payment of the debt. If you don't pay, the creditor is entitled to
take the collateral. Common examples are automobiles and mortgages. There are
two kinds of secured debts, consensual and nonconsenual.
Consensual Secured Debts:
Consensual
secured debts are based upon your agreement to collateralize the debt with
property. Again, the best examples are car notes with a lien on the car and
mortgages with a lien upon a home. Other examples include, home equity loans,
loans for boats, tractors, motorcycles or RVs, and some store charges. For
example, the credit card receipt for Sears states "Sears retains a security
interest in all hard goods (durable goods) purchased" - a dishwasher or TV.
Nonconsensual Secured Debts:
A
creditor can, in some circumstances, get a lien on your property without your
consent. These liens are termed nonconsensual liens. In theory, a nonconsensual
lien gives the creditor a right to force the sale of the property in order to
get paid. In reality, most creditors with a nonconsensual lien will not force a
sale but wait until you sell the property to enforce their lien. There are three
major types of nonconsensual liens:
 |
Judicial
Liens: A judicial lien can be imposed on your property if someone sues you
and wins a judgment. They will then record the lien with the county or
state. This creates a judicial lien against your property. |
|
Statutory
Liens: A statutory lien is a lien automatically created by law. The best
example is the worker or supplier who does work on your home. These people
get an automatic lien on the house if you don't pay. Another example are
homeowners associations which have an automatic lien against the property if
you do not pay your dues or special assessments. |
|
Tax
Liens: Federal, state and local government have the authority to impose
liens on your property if you owe delinquent taxes. If you owe money to the
IRS or other taxing authority, the debt is secured only if the taxing
authority has recorded a lien against your property or has issued notice of
tax lien. |
Lien Avoidance:
Lien
Avoidance is about turning secured liens on property into unsecured liens. A
security interest can be avoided if it meets the criteria listed below:
|
The
lien must be one in which you pledge property you already own as collateral
for a loan - a nonpossessory nonpurchase money security interest. Examples
are home equity loans, and credit union loans on an automobile. The key here
is that the secured loan was not for the purchase of the property - it is a
nonpurchase money loan. |
|
You
must be able to claim the collateral to which the lien is attached as
"exempt." The property must be part of your exempted estate. |
|
The
collateral must be any of the following property: household furnishings,
household goods, clothing, appliances, books and musical instruments,
personal jewelry; health aids (professionally prescribed); animals or crops
held for personal, family or household use; or implements, professional
books or tools used in a trade. A lien cannot be removed from real estate or
from a motor vehicle unless the vehicle is a tool of your trade. |
A
nonconsensual lien can be avoided only if it meets two criteria:
|
The
lien must be a judicial lien, which can be removed from any exempt property,
including real estate and cars. |
|
The
lien must be an homestead exemption. |
Unsecured
Debts:
An
unsecured debt is any debt for which you have not pledge collateral. If the debt
is unsecured, the creditor is not entitled to repossess or seize any of your
property if you don't pay. The most common example is MasterCard. Most
debts are unsecured such as:
|
revolving
charge cards (MasterCard, Visa, American Express, Foley's, etc . . ), |
|
back
rent, |
|
medical
bills, |
|
alimony
and child support, |
|
student
loans, |
|
utility
bills, |
|
loans
from friends or relatives, |
|
health
club dues, |
|
lawyer's
and accountant's bill's, |
|
church
or synagogue dues, and |
|
union
dues. |
Contesting
Disputed Debts in Bankruptcy:
When
you file for Bankruptcy protection, you must list out all debts on your papers.
This does not mean, however, that you are admitting to owing the debt. In a
Chapter 13 Bankruptcy, you list all of your disputed debts and this forum to
contest the validity of the debt. For example, IRS says you owe $100,000. You
know that you owe something, but no where near that amount. More like $20,000.
In the Chapter 13, your filings will contest the validity of the IRS claim
without the need for or use of the U.S. Tax Court.
|
|
