A person writing on a piece of paper

Navigating Chapter 7 Bankruptcy: Understanding Secured, Unsecured, and Priority Debts

Man is reviewing documents

When facing overwhelming debt in Augusta, Georgia, Chapter 7 bankruptcy can provide a powerful path to a fresh financial start. At Duncan Bankruptcy Law, we have helped thousands navigate this process. Understanding how Chapter 7 works starts with understanding how different types of debts are handled. Not all debts are treated equally by the bankruptcy court, and these classifications – secured, unsecured, and priority – directly impact your case.

The Three Categories of Debt in Bankruptcy

The U.S. Bankruptcy Code (Title 11 of the U.S Code) categorizes debts into different types, each with its own set of rules and regulations. Understanding these categories is essential for setting realistic financial goals for the future.

1. Secured Debts: The Debt Tied to Your Property

A secured debt is a type of loan backed by collateral. Collateral is a specific piece of property used to secure the loan. If you fail to pay back the loan, the lender can take possession of this property to recover their money.

Common examples include:

  • Mortgages (secured by your house)
  • Auto Loans (secured by your vehicle)
  • Some appliance or furniture loans (secured by the item purchased)

In Chapter 7, you have a choice:

  • You can reaffirm the debt by signing a new agreement and continuing to make payments, keeping the property.
  • Alternatively, you can surrender the property, returning the collateral to the creditor and having the remaining balance discharged as an unsecured debt, if any.
  • Finally, you can redeem the property by paying the current fair market value in a lump sum, keeping it.

At Duncan Bankruptcy Law, we specialize in using Georgia’s exemption laws to protect your most valuable assets, such as your home and vehicle, whenever possible under the Chapter 7 process.

2. Unsecured Debts: The Most Common Dischargeable Debts

Unsecured debts are not linked to any particular asset. Because there is no collateral, creditors rely solely on your promise to repay and the efforts of collection agencies.

These are the types of debts that are typically discharged in a successful Chapter 7 bankruptcy case, including:

  • Credit card debts
  • Medical bills
  • Personal loans from friends and family
  • Past-due utility bills
  • Certain types of personal loans

In Chapter 7 of the bankruptcy process, a trustee reviews the non-exempt assets of a debtor. If there are any assets, they can be sold to pay some of what is owed to unsecured creditors. However, if there are no assets, unsecured creditors may not receive anything and the debtor can get a full discharge of their obligations.

3. Priority Debts: Special Obligations That Often Survive

Priority debts are a specific category of unsecured debt that has special status under the Bankruptcy Code. These debts are generally not discharged in Chapter 7 bankruptcy and must be paid before any other debts, if there are any assets available.

Examples of priority debts include:

  • Domestic support obligations like alimony and child support.
  • Certain tax debts owed to federal, state, or local governments.
  • Wages, salaries, or commissions owed to employees. 
  • Certain government fines and penalties.

It is essential to discuss any potential priority debts with your attorney, as they will likely survive your bankruptcy and you will still be responsible for paying them.

Attorney gives the client a pen to sign a contract

How a Chapter 7 Discharge Affects Your Debts

The ultimate goal of Chapter 7 bankruptcy is to obtain a discharge order from the bankruptcy court. This legally releases you from personal responsibility for dischargeable debts and permanently prohibits creditors from attempting to collect them.

  • Most unsecured debts are fully discharged.
  • Secured debts are handled based on your decision regarding the collateral, as explained above.
  • Most priority debts are not discharged and you must continue to pay them.

Find Clarity and Control with a Free Consultation

The complex interplay between secured, unsecured and priority debts, as well as Georgia’s exemption laws, makes Chapter 7 bankruptcy a challenging process. Navigating this process alone is risky. Our experienced Augusta bankruptcy lawyers at Duncan Bankruptcy Law can analyze your unique situation, explain how each type of debt will be handled and develop a strategy to maximize your fresh start.

You don’t have to face financial difficulties alone. Contact us today for a free and confidential consultation. Let us use our decades of experience to help you overcome your current situation and regain control.