An Antioch bankruptcy attorney explains that secured debt is debt that is secured by some type of collateral. For instance, a person who has to pay a car note every month is a person who has secured debt. The security interest is the car or the vehicle that they purchased, and the creditor is the finance company that is financing the vehicle for the debtor. So, for instance, if a person does not make their payments to the finance company for the vehicle, then the finance company has the right to take and repossess that vehicle. That is the case even if you file bankruptcy online.
Another secured creditor is a mortgage company. A mortgage company has the collateral of the real property, which is the home or a time share, for instance, and that person, if they do not make the regular monthly mortgage payments, and then the mortgage company has the right to foreclose on the property and repossess that property.
Distinguishing the two, secured and unsecured creditors, is very important when one is trying to decide whether or not a Chapter 13 or a Chapter 7 bankruptcy is in their best interest. The reason being is Chapter 7 and Chapter 13 bankruptcies treat assets differently. So in a Chapter 7 bankruptcy, all of the creditors, whether secured or unsecured, are eliminated from the debt. However, if an asset has value that cannot be protected through exemptions, then in a Chapter 7 bankruptcy, that asset will be liquidated. This is done by the bankruptcy trustee in the ordinary course of the bankruptcy process.
So, for instance, if a person has a home that does not have a mortgage and the person owns the property outright, then there’s a good chance that that value of the property would not be totally protected. So the person is gambling that the trustee will not take a portion of that asset, which is the equity in your home. So if a person has a lot of assets and a lot of equity in those assets, following a Chapter 7 might not be the best way to go.
In a Chapter 13, however, those assets can be protected, and most likely will not be distributed or liquidated for the benefit of the creditors in a Chapter 13 bankruptcy. Chapter 13 bankruptcy also is bankruptcy where the person will be paying the secured creditors back in full and unsecured creditors back at a percentage, or possibly in full as well. Illinois bankruptcy law will play a role in how much has to be paid back over time.