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Secured Claims vs. Unsecured Claim – The Difference Explained

A claim is a term used to describe the outstanding debt a person owes to a specific creditor. In bankruptcy, a creditor must file their claim first in order to receive payment. There are two types of claims that a creditor can file – secured and unsecured. The main difference between the two is that in the former the claim is guaranteed by collateral while the latter has no such guarantee. This blog will educate you on the further differences between the two claims and how their processes work in bankruptcy.

The Claim Process

Within a bankruptcy process, the court may send each of your creditors a deadline (called claim bar) to submit proof of their claim. In addition, in their claim form, they will have to fill out relevant information on their owed debt such as its type, outstanding amount, and whether it is secured or unsecured. Depending on which of the either two is checked by the creditor, the way your owed debt gets discharged may be processed differently.

Secured Claim

Since this type of claim is a debt that was secured by collateral (e.g. home, car, or another type of property), how the creditor is repaid is fairly straightforward. If the said property is non-exempt, the creditor can take ownership of it and attempt to sell it to repay themselves.

However, there are certain types of secured claims in which the said involved debt does not necessarily need to be tied to any collateral. One example is your tax debt, in which the IRS can take the approval of the court to sell your property to secure payment.

Unsecured Claim

Unsecured claims are usually filed on debts that were not tied to any collateral (e.g. your outstanding medical bills, credit card debt, etc.) As such, in a discharge process, the creditors are not allowed to take procession of your property themselves in an attempt to secure debt repayment.

Rather, your non-exempt assets are first taken over by the court trustee who sells them and uses the proceeds to repay the amount to the creditor(s). If you have multiple creditors with an unsecured claim, repayment is done in order of priority. Debts such as child support, money owed to employers, and rent are paid off first. Meanwhile, debts such as those on the credit card or loans from friends and family are paid last.

Get the Help of a Professional Bankruptcy Attorney

Filing for bankruptcy is a very important decision with some serious consequences. Taking the help of a legal expert can go a long way in ensuring that its outcome remains more in your favor. To schedule a free consultation with a bankruptcy attorney, call 512.640.3340, or book one directly online.

How to File for Bankruptcy in an Emergency

Bankruptcy is most often the last resort for people who have nowhere to turn to and no protection against the creditors that are coming after whatever they have left. In a lot of cases, it’s a burning bridge kind of strategy. But even in the worst-case scenario, it offers you a chance to start anew. And more importantly, it pulls you out from the strain caused by constantly harassing creditors.

Filing for bankruptcy is a thorough and lengthy process. It requires a lot of documentation, jumping through several legal hoops and waiting for at least a few months to completely get it over with. But in a lot of cases, you don’t have a few months. You might be severely in debt, with creditors about to take last-resort collection actions against you. In these scenarios, it can be in your favor to know how to file for bankruptcy in an emergency.

Emergency Bankruptcy Filing

When you are short on time, or you need to stop creditors from taking action against you, you can file an online emergency bankruptcy. It’s also called a skeleton filing. The name is apt because, in an emergency bankruptcy filing, you submit the bare bones of the documents and issues. This filing only requires you to send in a few of the basic documents to start the process.

After that, you get a 14-day window to submit the rest of the forms. If you fail to do so, your bankruptcy case can be thrown out.

Important Documents and Steps of the Process

For an emergency bankruptcy filing, you need to send the following documents:

  • Your Bankruptcy petition – It should contain all the necessary identifying documentation, chapter details, and other important information.
  • List of creditors – It’s called a creditor mailing list, and it should be a complete overview of what you will be filing in the later forms.
  • Disclosure for attorney fees.
  • Form B121 – It’s your statement about your social security number.
  • Electronic filing declaration

In most cases, these documents constitute your emergency bankruptcy filing. But it would be better if you check in with your court’s clerk or visit their website on the exact procedure and documents you need to submit for an emergency bankruptcy filing. You will need to file the original forms and a set number of copies with the court clerk. Ideally, you can submit the whole fee, but if you can’t, you can submit a fee waiver application or a request for submitting the fee in installments.

Final Words

It might be too tenuous a task to perform on your own, especially if you are already under a financial strain. At the law office of Sean T. Flynn, we can help you understand and complete the emergency bankruptcy filing procedure. If you have any queries, consultancy requests, or if you require our assistance in filing for bankruptcy, don’t hesitate to give us a call. We will do our best to help you through this tough stage and get a clean start.

How Bankruptcy Stops Your Creditors

When you are burdened with debt and the creditors keep harassing you and asking for their money back, you might have no option but to file for bankruptcy. When you take this action, an automatic stay is ordered by the court. This stops civil lawsuits that are filed against you as well as specific collection actions that are being taken against your property by a government entity, collection agency, or a creditor.

How the Automatic Stay Helps

Here’s how automatic stay can offer some protection to you:

·         Stops Utility Disconnections

You might be behind on a utility bill, and the company’s representatives might be threatening to disconnect your telephone, gas, electric, or water service. The automatic stay can prevent this disconnection by the company for a period of at least twenty days.

·         Stops Foreclosure

If your house is being foreclosed on, then the automatic stay can stop the proceedings. However, what happens next will depend on the type of bankruptcy you file. If you file for Chapter 13 bankruptcy, you would be able to keep your home and catch up payments in a repayment plan. However, if you go for Chapter 7 bankruptcy, the relief provided by the automatic stay will be temporary, and you might have to give up your home soon.

·         Stops Evictions

The automatic stay might provide some temporary relief from eviction. However, if your landlord already holds a judgment of possessions against you at the time you file for bankruptcy, the eviction proceedings will not be affected by the automatic stay. The landlord will continue, and if they allege that you have been endangering their property, the automatic stay won’t be able to help you in any way.

·         Stops Wage Garnishments

Filing for Chapter 7 bankruptcy stops most wage garnishments. You get a full salary, and you’ll also be able to discharge qualifying debts like personal loans and credit card balances. It is worth noting that commonly garnished debts like alimony and child support won’t be discharged.

What the Automatic Stay Doesn’t Prevent

·         Loans from Your Pension

Despite the presence of automatic stay, money may be withheld from your income for repaying a loan from different types of pensions, such as IRAs and job-related pensions.  

·         Criminal Proceedings

An automatic stay won’t stop criminal proceedings. For instance, if you are sentenced to community service, you will be obligated to do community service, and the automatic stay won’t be able to stop it.

·         Support Actions

An automatic stay doesn’t stop a lawsuit against you to establish, collect, or modify alimony or child support or to establish paternity.

If you are being harassed by collectors for payment, filing for bankruptcy might be the right thing to do. However, before you take this step, consider seeking advice from an attorney.

Why It’s Better to File for Chapter 7 Bankruptcy Before Foreclosure

Imagine this scenario, you missed out on many months of your mortgage payments and now, you are at the risk of losing your property as the lender may move towards foreclosure. Should you file for bankruptcy before or after the foreclosure? Provided that the risk of auction cannot be avoided, filing for Chapter 7 bankruptcy before foreclosure is often better and can bring with it a host of advantages.

Buys You Time The most important advantage of filing for Chapter 7 bankruptcy before foreclosure is that it allows you to buy time. After filing for bankruptcy, the court will issue an automatic stay period, usually a duration of between three to six months. During the stay period, the lender cannot collect debts, nor schedule a foreclosure of your property. You can utilize the stay period to open negotiations with your lender.

Can Help You Save During the stay period, you don’t have to make debt repayments or pay rent because of foreclosure, which allows you to build up your savings. Furthermore, given the current state of the US real estate market, many properties are valued less than what they were mortgaged at. The outstanding amount owed to the lender after the sale of the property is called a “deficiency.” In Texas, lenders have the right to file a deficiency lawsuit after a foreclosure.

Because your mortgage debt is discharged if you file for bankruptcy before foreclosure, once the property is sold, there is no deficiency your lenders can sue you for.

You Don’t Owe Taxes on Forgiven Debt Fortunately, most lenders are not hawkish enough and often forego their right to sue you for a deficiency after foreclosure. However, this still leaves you to contend with the IRS. In their view, the forgiven outstanding debt translates to an income that they can tax. If you are not exempt under the Federal Mortgage Debt Relief Act of 2007, filing for Chapter 7 bankruptcy before foreclosure can save you from acquiring a tax liability.

Allows You a Fresh Start Some debtors may hesitate in filing for Chapter 7 bankruptcy before foreclosure. After all, it can leave them with a bad credit score. But foreclosure can similarly do likewise or worse, while still leaving you with some debt remaining. The harm you suffer from filing bankruptcy is temporary, and it allows you a fresh start to regain your financial health.

Filing for bankruptcy can be a strenuous process, so it is often wise to seek legal help while doing so. At the Law Offices of Sean T. Flynn, PLLC, in Austin, TX, I provide personalized legal service to my clients filing for bankruptcy under Chapter code 7 and 13. With over 8 years of experience in the field, I will assist you in mitigating your financial troubles. To schedule an appointment, call 512.640.3340 or book one directly online.

Bankruptcy Simplified: Chapter 7 vs. Chapter 13

In this article we discuss the main features and differences between the two and whether you should avail Chapter 7 or Chapter 13 for discharging your debt.

If you are ever unlucky enough to get yourself in a situation of unplayable debt then filing for a Chapter 7 or Chapter 13 bankruptcy can be your way of minimizing, or even eliminating, the burden. Many people often get confused between the two, or are unable to decide which one is better for solving their personal debt issues. In this article, we discuss the main features and differences between the two, and whether you should avail Chapter 7 or Chapter 13 for discharging your debt.

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy deals with the liquidation of non-exempt assets as a means to pay off the debts. It can be filed by both businesses and individuals.  Debt discharge is quick, usually taking around 3 to 6 months in most cases. Chapter 7 is the simplest and most common form of bankruptcy program that people file for.

When to Choose

Eligibility for Chapter 7 debt discharge is restricted to only those debtors with a low enough disposable income. Check to see if you qualify by passing the Chapter 7 means test eligibility threshold. Individuals should choose to file for Chapter 7 if their debt is dischargeable, and if creditors are not legally barred from seizing their assets.

Benefits & Drawbacks

The main benefit of Chapter 7 is that you can quickly eliminate most, if not all, of your debt and get a fresh start. The biggest drawbacks are the risks of you losing your property. Fortunately, such case results are rare in the US, and more so in Texas with its more favorable laws. Another drawback is that it may cause a temporary drop in your credit score.

What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy, on the other hand,  deals with the re-organization of your debt in order to make it easier for you to repay it. This Chapter is only available to individuals and the debtor cannot receive a discharge until the completion of the Chapter plan. 

When to Choose

You are only eligible for Chapter 13 bankruptcy if you earn a regular income, and if your debt does not exceed $394,725.00 (unsecured) or $1,184,200.00 (secured). Individuals should choose to file Chapter 13 if their debt isn’t dischargeable under Chapter 7, or the value of their assets is worth more than the available exemptions. Additionally, they can also file it if they just want to make up for past outstanding payments on their mortgage or car loan.

Benefits & Drawbacks

The main benefit is that that none of your assets are sold off to pay off your debt. Another advantage is that debt repayments are determined by what you can afford, and further interest isn’t incurred during the duration of the plan. A drawback is that most, or all of your disposable income will be tied up in repayments and you may temporarily see a decline in your credit score.

Before filing for either a Chapter 7 or Chapter 13 debt discharge, it is always recommended to speak with a legal attorney who can best advise you on the course of action you should take in discharging your debt with minimal losses.  If you are in need of a professional personalized legal service, contact The Law Offices Sean T. Flynn at 512.640.3340 or contact directly online.

Get A Fresh Start

Schedule a time to speak with an experienced Bankruptcy Attorney today!