When a consumer in Florida files a bankruptcy petition, they must list their debts. A creditor also can make a claim under two main types: secured and unsecured claims. How they get treated depends on the type of bankruptcy filed.
Unsecured debts in bankruptcy have no collateral and commonly fall under general unsecured and priority secured. General unsecured debts are often the lowest on the list to get paid, which include credit card and medical bills. Since these debts have no secured interest or collateral, the creditor may not get paid in full or at all.
A priority secured claim also doesn’t have collateral, but they are considered more important than general unsecured debt. Some examples of priority unsecured debts that generally don’t get discharged include certain back taxes, domestic obligations, and student loans. However, courts may discharge student loans if the consumer would face a hardship paying it off.
A secured claim covers debts that are not dischargeable and commonly must get paid completely before all unsecured debts. These debts are backed by a property or asset the creditor may seize for nonpayment, such as a house or a vehicle. In Chapter 7, these debts are paid from the sale of nonexempt assets and under a repayment plan in Chapter 13.
An under-secured claim occurs when the amount owed is higher than the asset value, which makes it an unsecured and secured claim. An over secured claim means the value of the asset exceeds the loan amount, and creditors are allowed to collect post-petition interest. The automatic stay may prevent creditors from temporarily foreclosing or repossessing, but they can file a motion to lift.
Bankruptcy doesn’t have to be a negative thing, but some terms can confuse consumers. It helps to understand the difference between the claims before filing. If a consumer aren’t sure what type of bankruptcy to file, they should seek assistance.